Month: October 2016

Several major central banks are scheduled to comment on monetary policy this week, though economic news will likely be overshadowed by politics in the final days of the U.S. presidential race. Monthly non-farm payroll and unemployment reports will be out later in the week. A new FBI probe into the on-going Clinton email scandal led to a market dip last Friday and may continue to impact markets throughout the week.

The U.S. Federal Reserve will meet on Tuesday and Wednesday. While analysts do not expect any significant changes before the election, the Fed’s accompanying policy statement may increase the odds of an interest rate hike in December. The Bank of Japan, the Bank of England and the Royal Bank of Australia will also report on current monetary policy this week.

Weekly unemployment claims are expected to decrease slightly from the prior week and Friday’s monthly jobs report calls for an increase in the number of jobs created compared to last month. The unemployment rate is expected to drop back to 4.9 percent after ticking up slightly last month.

Eurozone gross domestic product (GDP), reported on Monday, was in line with analysts’ expectations of slow, steady growth at 0.3 percent. Economists forecast a slight increase in September’s U.S. Personal Income and Outlays, the Chicago Purchasing Managers Index (PMI) and the Dallas Fed manufacturing survey. Tuesday’s ISM manufacturing report and Construction Spending data are forecast to show slight increases, while Light Vehicle Sales are expected to decrease. The weekly mortgage purchasing index and oil inventory reports will be available on Wednesday and Thursday’s ISM nonmanufacturing number is expected to show a slight decrease.

Pfizer (PFE), Alibaba Group(BABA), Facebook (FB) Qualcomm (QCOM), Whole Foods (WFM) and Duke Energy (DUK) are among the widely-held names scheduled to share earnings reports this week. Pharmaceutical giant Pfizer (PFE) is expected to meet expectations on Tuesday, while the others are slated to report on Wednesday. Analysts will pay close attention to QCOM considering Apple’s (AAPL) report citing increased smartphone competition.

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WEEKLY SECTOR PERSPECTIVE

The Nasdaq climbed 0.18 percent last week, while the Dow Jones Industrial Average gained 0.09 percent. The MSCI EAFE Index slipped 0.41 percent, the S&P 500 Index declined 0.69 percent and the Russell 2000 Index fell 2.50 percent.

The portfolios were led by the ETF Blended Portfolio, up 0.23 percent. The ETF International Portfolio fell 1.09 percent and the ETF Sector Portfolio fell 1.19 percent. The Fidelity Select Sector Portfolio trailed with a loss of 1.83 percent…read more

Strong earnings lifted stocks early in the week and comments from St. Louis Fed President James Bullard boosted bullish sentiment. Bullard expects low rates to persist over the next two to three years. Apple (AAPL) and Amazon (AMZN) dampened trading as the week wore on with subpar earnings. Major indexes closed the week relatively flat, despite a Friday shakeup following the announcement of a new FBI probe into Hillary Clinton’s emails. With less than two weeks before election day, the news quickly led to a spike in the VIX and sharp currency shifts that had moderated prior to Friday’s closing bell.  The Dow Jones Industrial Average finished the week down 0.05 percent, the S&P 500 fell 0.31 percent and the Nasdaq slipped 0.50 percent. The SPDR ETF (SPY) finished down only 0.30 percent.

The flash Purchase Managers Index (PMI) for October showed the fastest rate of U.S. manufacturing sector expansion in almost a year at 53.2, well above the forecast 51.5. The U.S. services PMI rose to its highest level in almost a year. New home sales were slightly lower than forecast estimates.

While a slight draw-down in crude inventory levels lifted oil prices on Wednesday, suspicion over supposed OPEC production cuts and hedging by U.S. shale producers once again took West Texas Intermediate Crude below $50 to close on Friday at $48.70 per barrel. Shares of the Energy Select Sector SPDR ETF (XLE) were consequently down on the week.

Weekly unemployment claims fell by 3,000 claims and remain near 40-year lows. Durable goods orders unexpectedly fell 0.1 percent. Estimates called for no change in the figure. Pending home sales rebounded in September. The index is now 2.4 percent higher than it was a year ago, reinforcing a strong housing market outlook. Third quarter GDP grew at 2.9 percent on the back of surprisingly strong exports. The strong number sent the dollar higher and raised the odds of a December rate hike.

General Motors (GM) shares dropped by 5 percent despite better-than-expected earnings due to margin erosion and future sales growth. Apple (AAPL) shares also fell more than 3 percent as the company reported the third straight quarter of year-over-year declines in revenue and increased competition, especially in China.

Caterpillar (CAT) shares fell more than 3 percent after revenues missed expectations and the company lowered its full-year guidance. Merck (MRK) shares were unchanged following earnings and revenues that beat estimates.  Boeing (BA) increased its delivery and revenue outlook to beat expectations. Coca Cola (KO) shares rose ahead of earnings, but remained flat on the week with a drop in net revenues, despite beating earnings estimates.

On Thursday, United Parcel Service (UPS) announced earnings that matched analysts’ forecasts on better-than-expected revenues. Alphabet (GOOG) also exceeded all expectations after the bell on Thursday, sending shares higher. Amazon (AMZN) sold off after-hours when earnings fell short of estimates, pulling down the Nasdaq at the end of the week.

SPDR S&P 500 (SPY)
SPDR DJIA (DIA)
PowerShares QQQ (QQQ)
SPDR S&P MidCap 400 (MDY)
iShares Russell 2000 (IWM)
SPDR S&P Dividend (SDY)

The Nasdaq broke the market’s trading range to the upside last week with strong earnings from Microsoft (MSFT), Alphabet (GOOG) and Netflix (NFLX). With the presidential election looming, investors seem to be in a holding pattern, but the move higher signals a positive long-term trajectory.

Both Fidelity Contrafund and Blue Chip Growth are benefiting from Nasdaq strength.

Fidelity Floating Rate High Income (FFRHX)
DoubleLine Core Fixed Income (DLFNX)
Thompson Bond (THOPX)
Fidelity Corporate Bond (FCBFX)
iShares iBoxx Investment Grade Bond (LQD)

Floating rate bond funds and funds geared towards rising rates, such as THOPX, extended their gains over the past week. The odds of a December rate hike reached 78 percent on Tuesday.

WisdomTree US Dollar Bullish (USDU)
PowerShares DB US Dollar Bullish (UUP)

The U.S. dollar rallied to its highest level since February this month and key currencies such as the British pound, euro, yen and Chinese yuan have all weakened.

Third quarter GDP will be released on Friday. The Atlanta Federal Reserve’s GDP Now model predicts growth of 2.0 percent, with one final adjustment on Thursday. The New York Fed is predicting slightly higher 2.2 percent growth in the prior quarter.

Sector Performance

Consumer staples rose 1.50 percent last week while Technology rallied 0.42 percent. Oil prices sent Energy down 1.51 percent, while a pullback in biotechnology pulled Healthcare down 0.83 percent.

VanEck Steel (SLX) jumped 3.99 and VanEck Coal (KOL) extended its rally. Global X Copper Miners (COPX) also looks poised to break out amid U.S. dollar strength.

Higher interest rates cut into homebuilders over the past month and iShares US Home Construction (ITB) is sitting near the bottom of its 2-year trading range. If ITB is going to bounce, it will do it soon, or it risks sliding as much as 10 percent as it heads back towards the 2016 lows.

Internet stocks lifted the Technology sector last week with a new 52-week high. Semiconductors look to challenge their old high, while social media and networking shares have a little further to go.

Regional bank shares set a new 2016 high over the past week as December rate hike odds also climb to their highest levels this year.

Biotech remains in an uptrend despite the recent pullback. Note the relative strength in the more volatile XBI, which is trading at June levels, as it compares to FBIOX and IBB in April. This reflects the bullish recovery in the sector as XBI leads the large cap funds higher.

SPDR Energy (XLE)

Crude oil topped out right near its 52-week high and bears pounced on the failure at resistance, sending West Texas Intermediate Crude back below $50 a barrel. Although oil inventory at Cushing, OK is at its lowest level of 2016 and near early-2015 levels, prices are coming under pressure as inventory hits the market. The expectation that American frackers will ramp up production if oil rallies to $60 a barrel and skepticism over OPEC cuts are also weighing on the market.