Month: April 2016

The S&P 500 Index performed relatively well in light of missed earnings and central bank disappointments. Apple’s earnings report sent shares down more than 10 percent on the week. Apple is the largest holding in the S&P 500 (3 percent of assets), and accounted for approximately a fifth of the index’s losses. It had a far larger impact on the Nasdaq, where it represents nearly 8 percent of assets.

As expected, the Federal Reserve did not change interest rates. The Fed’s policy statement indicated a slow first quarter, but removed language referring to global risks. The Bank of Japan did not change interest rates or expand asset purchases as the market had expected and priced in. The yen climbed to a new 18-month high versus the U.S. dollar and Japanese stocks erased all their gains for the week following the BOJ meeting.

The Bureau of Economic Analysis estimates a 0.5-percent increase in first quarter GDP, in line with final economist estimates as well as the Atlanta Fed’s model. Pending home sales were much stronger than expected, despite slightly low new home sales, a net positive for the housing market. Weekly jobless claims were below estimates, the trade deficit narrowed and durable goods orders rose. Personal income was also up 0.4 percent in March, though consumer spending lagged, spurring personal savings to a 3-year high. Second quarter GDP is expected to improve; the Atlanta Fed’s current model predicts 1.8 percent growth.

The United Kingdom’s GDP rose 2.1 percent. German consumer confidence surged 9.7 percent, beating consensus estimates. Eurozone business confidence remains upbeat under continued European Central Bank (ECB) monetary stimulus.

Boeing (BA) missed earnings expectations but provided strong future guidance based on anticipated robust aircraft sales. The markets were buoyed by earnings reports from Ford (F), Facebook (FB) and Amazon (AMZN). Ford nearly doubled its expected EPS, breaking a first quarter record. Shares of Facebook rose more than 8 percent as the company handily beat consensus earnings estimates on Wednesday. The company announced a new class of shares that would create a stronger financial structure going forward.

Amazon reported its fourth consecutive quarterly profit after Thursday’s bell, crushing expectations. Revenues climbed 28 percent and profits were 84 percent above estimates. The share price rose more than 12 percent after-hours and held most of the gains on Friday. The company’s cloud storage business unit proved impressive, delivering sales that were double those of the year-ago period.

Financials outperformed the S&P 500 throughout the week. Utilities and consumer staples rallied as investors gravitated toward higher yields amid reduced rate hike expectations. SPDR S&P Dividend (SDY) also outperformed the S&P 500. Industrials pulled back late in the week following a new all-time high on Wednesday. Four of the ten S&P 500 sectors have hit a new high this year.

iShares US Medical Devices (IHI)
iShares US Health Providers (IHF)
iShares Nasdaq Biotechnology (IBB)
SPDR Pharmaceuticals (XPH)

Medical providers led the healthcare sector last week, aided by solid earnings reports. Aetna (AET) is scheduled to report earnings tomorrow. Medical devices remain the strongest subsector from a momentum standpoint.

Biotechnology and pharma have traded sideways for three weeks, consolidating the rally that began in late March. The largest holding in iShares Nasdaq Biotechnology (IBB), Gilead (GILD) will report tomorrow, as will Amgen (AMGN) and Celgene (CELG). Pharmaceutical blue chips including Pfizer (PFE) and Merck (MRK) will report next week.

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

Microsoft (MSFT), Alphabet (GOOG) and Apple (AAPL) have dented the technology sector and dragged the Nasdaq lower with disappointing earnings. The S&P 500 Index, Dow Jones Industrial Average, as well as mid- and small-cap indexes, all marched higher.

The Nasdaq’s underperformance broke an uptrend in relative performance versus the S&P 500 that stretches back to 2013.

WisdomTree Bloomberg USD Bullish (USDU)
CurrencyShares Euro Trust (FXE)
CurrencyShares British Pound (FXB)
CurrencyShares Canadian Dollar (FXC)
CurrencyShares Japanese Yen (FXY)
WisdomTree Emerging Market Currency (CEW)

The British pound has advanced versus the U.S. dollar and the euro as sentiment has shifted against a “Brexit.”

The Bank of Japan is expected to increase asset purchases at Thursday’s policy meeting and has led to a tumble for the yen. If FXY falls through 85 it will be bearish for the yen, but advantageous for global equities.

SPDR Energy (XLE)
FirstTrust ISE Revere Natural Gas (FCG)
Global X Copper Miners (COPX)
Market Vectors Coal (KOL)
Market Vectors Steel (SLX)

Oil prices reached $45 a barrel over the past week, fully shaking off the failed OPEC meeting. The industry outlook would brighten considerably above $50.

China increased steel production in March and plans to increase exports in 2016, which is likely to invite more retaliatory tariffs. China is also fueling the commodities rally with a futures market bubble there. Iron ore was more heavily traded than oil on Chinese futures exchanges in April.

SPDR Utilities (XLU)
SPDR Pharmaceuticals (XPH)
SPDR Materials (XLB)
SPDR Consumer Staples (XLP)
SPDR Consumer Discretionary (XLY)
SPDR Healthcare (XLV)
SPDR Technology (XLK)
SPDR Financials (XLF)
SPDR Retail (XRT)

Energy and materials led the past week’s performance as commodity prices edged higher.

New home sales fell slightly below expectations (511,000 versus 518,000 expected), but pending home sales increased 1.4 percent, double the estimate. Shares pulled back last week after landing in the middle of ITB’s 2015 trading range.

Industrials broke out to a new all-time high over the past week. Unlike defensive sectors, industrial strength is typical of early bull markets and improving economic conditions.

iShares iBoxx High Yield Corporate Bond (HYG)
iShares iBoxx Investment Grade Corporate Bond (LQD)

High-yield credit continued to edge higher for a second week even as investment grade credit corrected. With the Fed statement edging in a hawkish direction, a 10-year treasury yield pullback is possible.

First Trust Dow Jones Internet (FDN)
PowerShares Nasdaq Internet (PNQI)

Amazon (AMZN) will report earnings tomorrow. Analysts expect the company’s web services to power its revenues, but Amazon’s investment spree could impact profitability.

SPDR S&P 500 Large Cap Growth (SPYG)
SPDR S&P 500 Large Cap Value (SPYV)

Value stocks have extended their 2016 outperformance and are now in a relative bull market versus growth leaning counterparts. SPYV counts financials as its largest sector holding, while SPYG is dominated by technology.

We are entering the second big week of earnings season. By Friday, the majority of S&P 500 companies will have reported. With widely held stocks like Apple (AAPL) and Facebook (FB) reporting earnings this week, the technology sector has a chance to bounce back from last week’s weakness.  Weaker-than-expected reports from Microsoft (MSFT) and Alphabet (GOOG) weighed on the tech sector, but the broader market shrugged off those tech misses and rode strong bank earnings to new 2016 highs. If tech can come around this week, the market may have a shot at hitting new all-time highs.

There will also be two key central bank meetings this week. On Thursday, the Bank of Japan and the Federal Reserve both have policy meetings. Everyone expects the Federal Reserve to leave rates unchanged and most believe the Fed will not signal a June rate hike. The Japanese central bank is expected to increase asset purchases and the market has already priced in some of this following last week’s yen sell-off.

March new homes sales were released on Monday and pending sales will be reported on Wednesday. New home sales fell unexpectedly by 1.5 percent, though the drop was concentrated in the western region of the U.S. March durable goods orders will be out on Tuesday and are expected to rise 1 percent. Thursday marks the release of the first estimate of first quarter GDP. The Atlanta Fed’s GDP Now Model forecasts 0.3 percent coming into the week, while the New York Fed’s model points to 0.8 percent growth. Economists are looking for 0.6 percent growth. Monthly personal income data will be available on Friday and includes the Fed’s favored measure of inflation, the core PCE. Economists forecast core PCE rose 0.1 percent in March.

In addition to Apple and Facebook, large-caps reporting earnings this week include Boeing (BA), Amazon (AMZN), Ford (F) and Exxon (XOM). Apple is expected to report earnings per share of $2.00 on top-line revenues of $51.97 billion. Analysts will be paying close attention to total iPhone sales, the company’s share buyback program and its current growth forecast when it reports Tuesday. Boeing is scheduled to report EPS of $1.83 and revenues of $21.44 billion. Strong demand for its civilian and military aircraft are expected. Facebook (FB), is expected to report an EPS of $0.62 and revenues of $5.2 billion. Analysts will focus on the company’s mobile Internet and advertising trends. Last week, Alphabet disappointed investors with higher costs for mobile advertising.

Later in the week, Ford (F) is expected to report EPS of $0.46 and revenues of $35.76 billion. Amazon (AMZN) is forecast to report EPS of $0.58 and revenues of $27.99 billion Thursday. The company’s cloud services will likely dominate as will recent changes to Amazon Prime that put it in greater competition with Netflix (NFLX). On Friday, the energy sector takes center stage when integrated giant Exxon (XOM) is scheduled to report revenues of $45.31 billion and earnings of $0.31 per share. Chevron (CVX) reports the same day and will be crucial for market cap weighted energy funds.