Month: May 2017

Stocks have recovered nearly all last week’s losses, closing higher across the board on Monday.

U.S. defense shares opened at a new all-time high on Monday after Saudi Arabia and the United States agreed to a $350 billion weapons deal, with $110 billion hitting immediately. iShares U.S. Aerospace & Defense (ITA) gained 0.87 percent on the day.

The 10-year Treasury yield opened the week at 2.24 percent. The yield has been in a downtrend since peaking in early March. A break below 2.2 percent would be bullish for bonds. The euro is at $1.12 and could rise as high as $1.15 before hitting stiff resistance.

Flash May PMIs will be out this week. The April Markit and ISM manufacturing surveys were 53.1 and 54.8, respectively. Economists are looking for a small uptick from those figures. The final May PMIs will be released on June 1.

New and existing home sales for April will be available on Tuesday and Wednesday. Economists expect an annualized sales pace of 610,000 new homes and 5.6 million existing homes.

On Wednesday, the last Federal Open Market Committee meeting minutes will be out. Several Fed officials are also scheduled to speak this week. Rate hike odds returned to above 80 percent on Monday.

The first-quarter GDP revision will be released on Friday and growth is expected to climb from 0.7 percent to 0.9 percent. Durable goods and core capital equipment orders for April are also due.

The Bank of Canada will meet on Wednesday, but no rate hike is expected. Japanese CPI is due on Thursday. Britain’s exit from the European Union could be rockier than expected. A bill for U.K. commitments has ballooned to 100 billion euros, according to the EU. Negotiations are scheduled to start on June 19.

Only 5 percent of S&P 500 companies are left to report earnings, including Intuit (INTU), AutoZone (AZO) and Toll Brothers (TOL).  Lowe’s (LOW) will report on Wednesday. Analysts are looking for substantial earnings growth of 23 percent. Advance Auto Parts (AAP), Tiffany’s (TIF), and Bank of Montreal (BMO) will also report.

Thursday will be the heaviest day for earnings with Medtronic (MDT), Royal Bank of Canada (RY), Toronto Dominion Bank (TD), Costco Wholesale (COST), Dollar Tree (DLTR), Hormel (HRL), Ulta Beauty (ULTA) and Best Buy (BBY).

The S&P 500 Index closed above 2400 for the first time, but ended the week at 2,381.73 after rebounding from Tuesday’s dip.  Major indexes rebounded quickly after the sell-off to finish the week essentially flat.  The Nasdaq closed on Friday at 6,083.70, down 0.60 percent for the week. The Dow Jones Industrial Average rallied back to 20,804.84, losing 0.40 percent on the week.   Rate hike odds fell to a low of 65 percent on Wednesday and have since rebounded back to 73 percent.

Economic data was strong this week. Housing starts rose 0.7 percent to an annualized pace of 1.172 million in April. Building permits increased 5.7 percent to 1.229 million and Homebuilder confidence hit 70 in May. April industrial production climbed 1.0 percent, double the estimate. Capacity utilization also exceeded expectations at 76.7 percent. Weekly initial unemployment claims were 232,000. The New York Fed’s manufacturing survey fell to -1.0 in May, but the Philly Fed’s survey climbed to its second-highest year-to-date reading of 38.8.

Chinese fixed-asset investment, industrial production, and real estate investment in April point to a slowing economy. In Japan, first-quarter GDP exceeded expectations of 1.7 percent with 2.2 percent growth. Oil prices rebounded above $50 this week after Russia and Saudi Arabia sparked optimism ahead of the next OPEC meeting.

The U.S. Dollar Index slipped below 98 as the euro and yen strengthened. A weaker currency was positive for multi-nationals in the first quarter. iShares MSCI EAFE (EFA) climbed 1 percent this week with currency moves.

Brazil dented emerging-market funds on Thursday when its president was linked to an ongoing corruption investigation. Only last year, Brazil removed its sitting president and the head of its Chamber of Deputies for corruption. iShares MSCI Brazil (EWZ) declined 16 percent, while iShares MSCI Emerging Markets (EEM) fell 1.7 percent on the day as Brazil currently comprises 6.7 percent of EEM’s assets.

Target (TGT) blew past estimates of $0.91 with $1.21 per share. Wal-Mart (WMT) earned $1.00 per share, 4 cents better than estimates. Same-store sales climbed 1.4 percent and e-commerce grew 63 percent. Gap (GPS) beat on earnings and revenue. Same-store sales also increased 2 percent versus a forecast decline of 0.2 percent. Children’s Place (PLCE), beat estimates and raised guidance. Ralph Lauren (RL) beat sales and earnings forecasts. L Brands (LB) met expectations, but same-store sales declined 9 percent.

Shares of Cisco (CSCO) fell 7 percent on Thursday after the company beat earnings estimates, but lowered guidance and announced 1,100 layoffs. Semiconductor supplier Applied Materials (AMAT) beat estimates and raised its guidance well above Wall Street estimates. Chinese e-commerce giant Alibaba (BABA) missed on earnings, but easily beat revenue estimates, sending shares higher.

The S&P 500 Index closed above 2400 for the first time this week, joining the Nasdaq at a new all-time high. The Russell 2000 Index made a new all-time high at the end of April. The Dow Jones Industrial Average has yet to surpass its record of 21,115.55, achieved on March 1, 2017.

Stocks fell on Wednesday, but selling was organized and relatively minor. Sectors that have demonstrated the most significant growth likewise saw the steepest declines, thus technology declined, while utilities, consumer staples and healthcare outperformed.

The 10-year Treasury yield could test its 52-week low over the next week. June rate hike odds in the futures market are down to 70 percent, off their peak of 88 percent.

Corporate and investment-grade bonds stand to gain the most if the 10-year Treasury yield breaks to a new 2017 low.

Libor climbed to a new 52-week high, which benefited PowerShares Senior Loan Portfolio (BKLN).

The housing market continues to strengthen. Housing starts rose 0.7 percent from a year ago, hitting an annualized pace of 1.172 million in April. Building permits increased 5.7 percent to 1.229 million. iShares Dow Jones US home construction ETF (ITB) hit a new 52-week high.

The retail sector continues to favor online sellers as brick-and-mortar stores struggle. SPDR S&P Retail (XRT) may test the $41 level. The Amplify Online Retail ETF (IBUY), however, hit a new 52-week high.

Oil was $46 a barrel last week. U.S. shale producers have suppressed prices, while the completion of the Dakota Access pipeline in April cut transportation by $3 a barrel for producers in the region.

The U.S. dollar remains in consolidation, with a likely bottom in the 96-97 range.

The chart compares the relative performance of iShares MSCI EAFE (EFA), SPDR S&P 500 (SPY), and PowerShares U.S. Dollar Index Bearish (UDN).

Emerging markets will soon test upside resistance. iShares MSCI Emerging Markets (EEM) last traded above $44 in 2011. WisdomTree Emerging Markets Small Cap Dividend (DGS) is near its 2013 peak. All four BRIC ETFs (Brazil, Russia, India and China) are below their 5-year highs.