Month: May 2017

The S&P 500 Index and Nasdaq have continued to climb over the past week and although the Dow Jones has a little farther to go, the SPDR DJIA ETF (DIA) also hit a new all-time high.

Technology and consumer discretionary have powered recent Nasdaq gains. Amazon (AMZN) beat Google (GOOGL) to $1000 a share intraday, but has yet to close above the psychological mark. Consumer discretionary also advanced on the week.

SPDR Technology (XLK) saw some selling on Friday, followed by the iShares North American Tech Software ETF (IGV) this week. Both are reflected in corresponding volume spikes on the charts below. Vanguard Technology (VGT), iShares US Technology (IYW) and iShares Semiconductors (SOXX), however, have not seen elevated volume, and SOXX was trading at all-time highs on Wednesday.

Weakness in energy, sideways action in financials and the surge in technology and consumer discretionary show up as growth outperforming value in 2017. The move has almost completely reversed the outperformance by value that started in early 2016, as hopes of a “reflation” fade.

However, an important test of this move is coming up. Investors are betting heavily on technology, and traders are short energy. A short-term reversal is increasingly likely as these positions grow in size.

Industrials and the defense aerospace subsector traded at new all-time highs on Tuesday. General Electric (GE) is obscuring the strength in industrials though. It is the largest company in the sector at 8 percent of assets and it is trading at a 52-week low.

One- and 3-month Libor have started to price in a June rate increase. Floating-rate funds have climbed with Libor.

Energy equities, as measured by SPDR Energy (XLE), hit a new 2017 low on Wednesday, SPDR Oil & Gas Exploration & Production (XOP) is testing its 52-week low, and SPDR Oil & Gas Equipment (XES) has broken to a new 52-weeek low.

Healthcare stocks will likely move higher over the coming weeks.

China manipulated the yuan higher on Wednesday by driving up funding costs. Emerging-market currencies followed it higher. Investors also shrugged off a potential early Italian election, bidding the euro back near its 2017 high. Although currency markets were favorable for foreign shares, U.S. markets have outperformed the MSCI EAFE over the past week.

The Federal Reserve minutes sent stocks to new all-time highs this week, as odds of a June rate increase rose to 88 percent.  The S&P 500 Index and the Nasdaq each achieved all-time highs, gaining 1.3 and 2.1 percent, respectively, for the week. The Dow Jones Industrial Average gained 1.3 percent.

First-quarter GDP growth was revised to 0.9 percent from 0.7 as higher exports and strong business and housing investment boosted estimates.  The flash PMI for May fell from 52.8 to 52.5, while the services PMI climbed from April’s reading of 53.1 to 54.0. Durable goods orders for April were stronger than expected as well.

Oil prices fell this week after OPEC voted to extend production cuts for nine months. Crude climbed as high as $52 a barrel before slumping to $48. SPDR Energy (XLE) finished the week near its 2017 low.

Housing data was weaker than expected in April. New homes sales climbed 0.5 percent from last year to an annualized pace of 569,000, but missed expectations. Existing home sales climbed 1.6 percent from last year to an annualized pace of 5.57 million homes, but also missed forecasts. Analysts attributed the slower growth to low inventory.

The 10-year Treasury yield was flat on the week at 2.2 percent. The U.S. Dollar Index firmed around 97. European shares ended nearly three months of outperformance versus the S&P 500.

Lowe’s (LOW) blamed weaker-than-expected housing data for its first-quarter earnings miss, although Home Depot (HD) reported solid results last week.Homebuilder Toll Brothers (TOL) also exceeded expectations. CEO Douglas Yearly reported the firm’s best spring sales in over 10 years. Earnings were 73 cents-per- share in the first quarter, up from 51 cents last year.

Medtronic (MDT) beat estimates, but guidance was weaker than expected. Analysts were looking for sales growth higher than the company’s 4 to 5 percent forecast.

Shares of Costco (COST) rallied more than 2 percent after its earnings report. Same-store sales climbed 5 percent, far better than the larger retail sector and analyst estimates. Earnings were 28 percent higher than year ago levels, and 13 percent higher excluding one-time items.

Shares of Amazon (AMZN) and Google (GOOGL) approached $1000 on Thursday and Friday. Utilities were the best performing sector despite rising rate hike expectations. Technology, consumer staples and healthcare were close behind.

Major indexes are poised to challenge old highs in the days ahead. The Dow Jones Industrial Average is only 0.7 percent away from its all-time high. The Nasdaq is also close to setting new highs, while the Russell 2000 is in a sideways trading pattern, less than 3 percent off its all-time high.

Industrials have strengthened the Dow and S&P 500. SPDR Industrials (XLI) hit a new high this week following a $110-billion arms deal with Saudi Arabia.

Consumer staples and utilities have also improved Dow and S&P 500 relative performance.

Investors are pricing a rate hike into short-term credit markets. One-month Libor hit 1.029 percent on Monday. Three-month Libor resumed its advance, climbing to 1.19 percent. Odds of a June rate hike hit 83 percent on Wednesday, up from 65 percent a week ago.

Crude oil rebounded above $50 a barrel this week, but remains volatile. Another downturn is likely in the near term.

The medical device subsector remains the strongest component in healthcare. The iShares U.S. Medical Devices ETF (IHI) hit a new high this week. Bullish traders are watching IBB for a break above $300.

The euro extended its rally this week, lifting European shares. The U.S. Dollar Index fell to 97 before stabilizing this week. European and British equities remain in a sharp uptrend rally that stretches back to November, and accelerated in April.

Shares of individual Eurozone countries are at or near multi-year highs. iShares MSCI Germany (EWG) and Netherlands (EWN) are at new all-time highs, France (EWQ) and Belgium (EWK) are very close, and Austria is at a multi-year high. The major debtors, Spain and Italy, have much further to go.

Emerging-market funds were hit by a plunge in Brazilian stocks and currency last Thursday. Brazil’s president is being investigated for bribery, less than a year after the former president was removed from office on corruption charges.

The Brazil ETF rebounded in early 2016 with commodities. Commodity prices outweigh politics moving forward, but in the short-term the bribery case could spark more volatility.

Elsewhere in emerging markets, India funds started correcting after a non-stop year-to-date rally.

Chinese real estate stocks are near their highs in 2017. The government launched a major crackdown on shadow banking and the real estate sector in March and April. Similar efforts led to a sharp decline in 2015.