Market Perspective for June 30, 2017

Broad market indexes rebounded slightly on Friday, but fell on the week as the overdue rotation out of technology stocks and into primarily financials and healthcare sectors continued. SPDR Financial (XLF) gained 3.18 percent, while SPDR Technology (XLK) fell 2.66 percent. The technology sell-off represents a normal pullback within a bull market; XLK is still up 14.21 percent year-to-date.

The healthcare sector continues to benefit from the tech correction. SPDR Healthcare (XLV) is up 15.84 percent year-to-date after last week’s biotechnology and pharmaceuticals gains.

Financials have also outpaced other sectors in recent weeks. All 34 large banks solidly passed Federal Reserve stress tests on Wednesday, and immediately announced share buybacks and increased dividends. Zions Bank (ZION) plans to triple its dividend by 2018, while J.P. Morgan (JPM) will hike its dividend by 12 percent, starting with the third-quarter payment. Shares of SPDR S&P Regional Banking (KRE) gained 3.87 percent on the week.

Both the Conference Board and the University of Michigan consumer confidence surveys increased, despite negative expectations. The third and final estimate of first-quarter GDP growth was also higher- than-expected at 1.4 percent and double the initial 0.7-percent estimate. Consumer spending and exports drove the upward revision. Personal income grew 0.4 percent in May, also better-than-expected, and core PCE inflation fell 0.1 percent.

Walgreen’s (WBA) terminated its merger with Rite Aid (RAD) this week. Instead of merging the two firms, Walgreen’s will instead buy more than 2,000 stores for $5.2 billion in cash. This deal must also meet regulatory approval, but the hurdles are lower. Rite Aid shares fell more than 30 percent from high to low this week. Walgreen’s rallied on the news.

KB Home (KBH) lifted the homebuilder sector with an earnings beat and raised guidance. Paychex (PAYX) beat profit and sales estimates, but disappointed on guidance. Shares fell to a new 2017 lows. Monsanto (MON) joined KBH at a new 52-week high after it beat estimates and affirmed its forecast for 2017 earnings.

The U.S. Dollar Index broke out of its short-term trading range to a new 2017 low. The 10-year Treasury yield rose to 2.3 percent as European bond yields spiked.

Oil prices bounced this week and energy stocks rallied. The move reversed some of the prior week’s losses, but crude oil remains in a clear short-term bearish trend.

The ETF Investor Guide for June 2017

The June Issue of the ETF Investor Guide is NOW AVAILABLE! Links to the June Data Files have been posted below. Market Perspective: Healthcare Stocks May Breakout this Summer The […]

Market Perspective for June 26, 2017

Equities opened the week near their all-time highs and both the S&P 500 and Dow Jones Industrial Average closed higher on Monday. The Nasdaq lost 0.29 percent on the day.

Durable goods orders fell 1.1 percent in May, close to the -0.8 percent estimate. The Case-Schiller home price index for April and pending home sales in May will be released later in the week, and the third and final estimate of first-quarter GDP will be out on Thursday. Economists expect it will match the second estimate of 1.2 percent growth. Core PCE inflation for May and personal spending data will be out on Friday. Forecasts call for 0.1 percent inflation and a 0.1-percent rise in spending.

Both the Conference Board and University of Michigan consumer confidence surveys for June will be out this week. Analysts anticipate a slight drop in the Conference board report, while the Michigan data is expected to remain steady.
Janet Yellen will speak on the global economy on Tuesday. It will be her first major speech since the June rate hike. As of today, speculators in the futures market don’t expect another rate hike until March 2018.

The 10-year Treasury yield edged lower on Monday. Crude oil climbed above $43 on Monday, but remains under pressure. UBS reported potential financial difficulty for oil companies if prices consistently fall to $40 or lower.

KB Home (KBH) will report earnings on Tuesday. Analysts are looking for 26 cents-per-share, a 53 percent increase versus a year ago. New home sales were up strongly in May. The median home price jumped as well as wealthier buyers dominated the market. That should benefit builders with high-end offerings, such as KBH.

Monsanto (MON), General Mills (GIS) and Paychex (PAYX) are scheduled to report earnings on Wednesday. Monsanto is expected to report a decline from last year with earnings of $1.74 per-share. Consensus estimates call for 71 cents in earnings at General Mills and 53 cents at Paychex.

Nike (NKE) and Walgreens (WBA) announce earnings on Thursday. Nike is expected to deliver 49 cents per share, same as a year ago. Analysts forecast $1.31 per share at Walgreens. The bigger news for Walgreens is the upcoming Federal Trade Commission vote on its merger with Rite-Aid (RAD). The FTC must make a ruling by July 7.

Chipmaker Micron Technology (MU) also reports on Thursday. The company lost 8 cents per share in the year ago quarter, but is expected to have earned $1.37 in the most recent quarter.

Market Perspective for June 23, 2017

The healthcare sector was propelled by breakouts in biotechnology and pharmaceuticals this week, while medical devices and healthcare providers continued to trade in established bull markets. iShares Nasdaq Biotechnology (IBB) gained 9.56 percent this week, SPDR S&P Pharmaceuticals (XPH) 6.35 percent and SPDR Healthcare rose 3.60 percent.

The Nasdaq gained 1.84 percent this week, the Dow Jones Industrial Average gained 0.05 percent, the S&P 500 Index 0.21 percent and the Russell 2000 Index 0.57 percent.

Economic data was light this week, but overall positive. Both new and existing home sales rose faster than expected in May. New homes sales were strongest, rising 8.9 percent from May 2016. Median home prices surged 11.5 percent from April’s $310,200 to $345,800. The median new home prices have increased 16.8 percent in the past year.

Flash PMIs for June suggest U.S. manufacturing and services sectors expanded slightly slower than in May. New orders, however, picked up, a positive signal for growth in the coming months.

Oil prices tumbled again this week. West Texas Intermediate crude slipped below $43 a barrel. Rig counts and production continue rising in the U.S. market. Energy subsectors fell to fresh 52-week lows. If it wasn’t for large-cap integrated oil firms such as Chevron (CVX), broad energy funds such as SPDR Energy (XLE) would also be trading at 52-week lows. Energy is the only major sector losing ground in 2017.

The 10-year Treasury yield was flat on the week. Short-term interest rates kept rising, with three-month Libor hitting 1.3 percent. The U.S. Dollar Index rose slightly, but remained in its tight trading range between 96.5 and 97.5.

The week’s key reports were both better than expected. Oracle (ORCL) lifted the technology sector substantially with strong earnings. Sales increased 1.8 percent and earnings 4.9 percent. Oracle’s shares closed the week at a new all-time high, the first new all-time high since the year 2000.

FedEx (FDX) beat fourth-quarter sales and earnings estimates. It was the first beat following two quarterly misses. The consensus called for earnings of $3.89 per share, but FDX delivered $4.25. Revenue was $15.7 billion, about $150 million above estimates. Management also raised guidance for FY2018. Shares climbed 2.5 percent on the week.