Month: April 2017

SPDR S&P 500 (SPY) is up 13.5 percent from its November 2016 low, despite the recent consolidation period. SPY is still on pace to gain more than 30 percent in 12 months.

The Nasdaq continues to outperform the broader market. A 0.3 percent rally will lift PowerShares QQQ (QQQ) to a new all-time high. The Russell 2000 is also looking stronger. iShares Russell 2000 ETF (IWM) has refused the break below $133 since December. The Dow Jones Industrial Average and SPY made new closing lows in April, but both are trading above their March lows.

Intermediate- and long-term Treasury yields broke below their trading ranges to the lowest level since November 2016. This is bullish for all longer maturity government, investment-grade and corporate bonds.

The 2-year Treasury yield is also worth watching this week. A break below 1.10 percent yield would signal a broader rally in bonds. There has been no weakness in Libor, the key interest rate for floating-rate funds.

Rate-sensitive utilities and real estate are benefiting from falling interest rates. SPDR Utilities (XLU) set a new all-time high last week. Vanguard REIT (VNQ) has shown a similar pattern over the past year, but remains below its 52-week high. SPDR Consumer Staples (XLP) is less sensitive to interest rates, but spiked to a new all-time high this past week.

Tuesday’s housing market data was mixed. March housing starts were below the median forecast at 1.215 million, but building permits climbed to 1.260 million. iShares U.S. Home Construction (ITB) shares are on the verge of setting a new post-housing-bubble high.

Crude oil pushed back to $53 a barrel and has held that level for more than a week. Inventory fell over the past week, but gasoline inventory rose.

XLE fell over the past week and is now approaching its 2017 closing low of $68.24. The dip threatens the series of lower highs for XLE going back to the January 2016 bottom.

Internet and software are the two strongest technology subsectors. The software sector, as tracked by iShares North American Software (IGV), is making new all-time highs daily. Social media shares have also rebounded strongly from their 2016 drop.

Emerging markets are off to a good start in 2017. VanEck Emerging Market High Yield Bond (HYEM), with dividends stripped out, is reflected in the chart below. The chart shows an inverted head-and-shoulders pattern that completed this past week. The upside target for HYEM is around $28 per share, a gain of more than 10 percent.

iShares Emerging Market Local Currency Bond (LEMB) is on the cusp of breaking out from a 2-year consolidation pattern. iShares Emerging Market Corporate Bond (CEMB) also has an inverse head-and-shoulders pattern. JPMorgan USD Emerging Market Bond (EMB) does not show the same pattern as it holds debt denominated in U.S. dollars.

WisdomTree Emerging Market Currency Strategy (CEW) is approaching 2-year highs.

iShares MSCI Emerging Markets (EEM) peaked almost a decade ago, and has since traded in the $30s. Weakness in commodities and oil hammered Brazil and Russia, while China’s markets rapidly fell more than 3 percent. India, however, has lifted this sector of the market. India ETFs and mutual funds are trading at 5-year highs.

EEM needs to rally more than 15 percent to set a new all-time high.

Equities entered the seventh week of a consolidation phase and moderate economic reports. Markets saw two major consolidation periods last year. The first ran from April until a week after the Brexit vote, and there was a four-month consolidation heading into the U.S. Presidential Election.

The S&P 500 Index opened the week just 2.9 percent from its all-time closing high and all major indexes edged slightly higher on Monday. J.P. Morgan (JPM) and Citigroup (C) kicked off earnings last week with better-than-expected reports, boosting the expected earnings growth rate for the S&P 500 Index to 9.2 percent. Several blue chips and major financial firms are scheduled to report this week.

Netflix (NFLX) reported 40 cents per share in earnings after the bell on Monday, beating estimates of 37 cents. Despite subscriber growth missing expectations, the stock has rallied by over 1 percent in after-hours trading.

Johnson & Johnson (JNJ), Bank of America (BAC), International Business Machines (IBM), UnitedHealth Group (UNH), Goldman Sachs (GS), Charles Schwab (SCHW) and Yahoo (YHOO) are all expected to report earnings on Tuesday.

Most of the financial sector will have reported by the end of Wednesday (as measured by market capitalization), including U.S. Bancorp (USB), Morgan Stanley (MS), American Express (AXP), BlackRock (BLK), ASML Holdings (ASML), CSX Corp (CSX), eBay (EBAY), Abbott Labs (ABT) and Qualcomm (QCOM).

Visa (V), Verizon (VZ), and Philip Morris International (PM) will report on Thursday, as well as smaller financial companies Bank of New York Mellon (BK), BB&T (BBT), The Travelers Companies (TRV), Blackstone Group (BX), KeyCorp (KEY) and Citizens Financial Group (CFG).

Industrial earnings from General Electric (GE), Honeywell (HON), and energy services giant Schlumberger (SLB) will report on Friday.

The homebuilder confidence index hit 68 in April, down slightly from March, but still near record levels of optimism. March housing starts and building permits will be out on Tuesday, followed by existing home sales on Friday. Economists expect all data points will show improvement in the sector.

Industrial production and capacity utilization will be available on Tuesday, the Fed’s Beige Book on Wednesday, and flash manufacturing and services PMIs for April will be released on Friday.

Chinese first-quarter GDP growth was 6.9 percent, 0.1 percent above estimates. Industrial production and fixed asset investment also grew faster than expected. The Eurozone’s March consumer inflation rate, an important data point for currency markets, is due out on Wednesday morning. The European Central Bank has held steady with rates and quantitative easing, despite a pickup in inflation.

Energy and interest rates will be major markets to watch this week. West Texas Intermediate crude oil opened the week at $53 a barrel. There is a trading range between $51 and $55, any move above or below would be a significant divergence for the energy sector. Analysts forecast a big draw from inventory this week.

The 5-, 10- and 30-year Treasury yields broke below their trading range last week and continued in that direction on Monday, while investment-grade and corporate bonds have broken out to the upside.

Equities remained in a trading range during the holiday-shortened week, despite blowout bank earnings. The S&P 500 Index slipped 1.1 percent. The 5-, 10-, and 30-year Treasury yields fell to their lowest levels in 2017, benefiting corporate and investment grade bonds. Fidelity Select Corporate Bond (FCBFX) climbed to its highest level since November 2016.

J.P. Morgan (JPM) earned $1.65 per share versus estimates of $1.52. Revenues also beat forecasts. The trading division drove results with revenues coming in $1 billion higher than expected. Loan growth was 9 percent. Citigroup (C) beat consensus earnings estimates by 11 cents, earning $1.35 per share. Its bond trading division saw revenue climb 19 percent.

Earnings at Wells Fargo (WFC) were strong, but revenues were hurt by the accounts scandal. The bank earned $1.00 in the first quarter, 3 cents better than forecast. Revenue came in 1 percent below estimates, however, as growth in the consumer divisions remains weak.

Regional bank earnings were also strong. PNC Financial (PNC) reported $1.96 per share in earnings, 14 cents better than estimates. Commerce Bancshares (CBSH) reported earnings growth of 9.7 percent. The solid start to bank earnings lifted the first quarter S&P 500 earnings growth estimate from 9.0 percent to 9.2 percent.

Delta Air Lines (DAL) earned $0.77 per share, 2 cents better than estimates. Revenue missed slightly. The firm guided lower in the second quarter due to early April storms in the Atlanta area. Delta also used United Continental’s (UAL) customer service nightmare to highlight its success with handling overbookings.

Initial claims for unemployment fell back to near 44-year lows last week. At 234,000, claims were below the consensus forecast of 245,000, The University of Michigan Consumer Sentiment Index hit 98, the highest level since November 2000. It confirms the jump in sentiment recorded by the Conference Board’s March survey.

Producer and consumer prices fell in March according to the Bureau of Labor Statistics. Headline producer prices declined 0.1 percent for the month and 2.3 percent in the past year. Core producer prices climbed 1.7 percent over the past 12 months. With the energy comparisons fading, producer prices should moderate and converge with core prices in the coming months.

Consumer prices also fell in March, the first monthly decline since February 2016. Here as well, the year-on-year gains in energy are dissipating, as falling gasoline prices helped pull the headline number lower. Core inflation also declined 0.1 percent during March. The 12-month headline CPI was 2.4 percent, with core inflation rising 2.0 percent. Chinese inflation numbers out this week also showed a similar deceleration in inflation.

Retail sales beat estimates in March. Economists forecast a decline of 0.3 percent, but sales only dipped 0.2 percent. Weaker auto sales were the main reason for the slowdown.

West Texas Intermediate crude oil topped $53 a barrel this past week, bringing prices back into the December 2016 to March 2017 trading range. Equity investors weren’t buying the rally on Thursday though, sending SPDR Energy (XLE) down 1.83 percent on the day.