Mutual Fund & ETF Watchlist for June 21, 2017

The Dow Jones Industrial Average and S&P 500 continued to hit new all-time highs over the past week. The Nasdaq extended its consolidation phase, while the Russell 2000 remains the weakest major index in 2017.

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The Dow Jones Industrial Average has outperformed since the June 9th tech correction.

Healthcare and industrials have lifted the Dow over the past few weeks. The Dow has a 21 percent allocation in industrials, its single largest sector, and 13 percent in healthcare. General Electric (GE) pushed the sector higher last week, but that move faded on Tuesday and into Wednesday.

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Healthcare traded at a new high on Wednesday.

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Biotech broke out to the upside on Tuesday, followed by pharmaceuticals on Wednesday. Healthcare is now firing on all four cylinders.

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Value is consolidating its gains versus growth. This dip is mainly the result of a bounce in technology shares. The second largest growth sector is consumer discretionary. On Wednesday, XLY hit a new low for June. If the sector rotation thesis is correct, we should see technology follow XLY in the coming days and weeks. Technology and consumer discretionary combine for 52 percent of iShares S&P 500 Growth (IVW). Their combined weighting is 38 percentage points higher than in iShares S&P 500 Value (IVE).

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The swing sectors for IVE are financials, energy, utilities and staples. These four are weighted 41 percentage points higher than IVW.

Energy is clearly the weakest sector in the market and further losses are likely.

Bank earnings estimates have been rising as higher interest rates translate into higher profits.

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XLE has support around the $62 to $64 range. If that doesn’t hold, a retest of 2016 lows around $50 becomes much more likely. XES is already headed for a test of those lows. XOP has a bit of support around $30, but otherwise a drop to the 2016 lows also looks possible. Crude oil has support at $40. If it stays above $40, this looks like a sideways consolidation. Fundamentals offer no support with inventory still at or near record highs and U.S. production rising.

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The U.S. Dollar Index needs to rally 2 percent to break out of the current downtrend.

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May existing home sales beat forecasts. The median price rose to the highest on record. Analysts were looking for sales to fall 0.5 percent in May, but they rose 1.1 percent. Sales were 2.7 percent higher than in May 2016. Home builder stocks are near their 52-week high.


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The Investor Guide to Vanguard Funds for June 2017

The June Issue of the Investor Guide to Vanguard Funds is NOW AVAILABLE! Links to June Data Files have been posted below. Market Perspective: The Beginning of a Sector Rotation The […]

Market Perspective for June 19, 2017

Equities started the week in record territory, led by strength in financials, industrials and healthcare. The Nasdaq moved the market higher on Monday after technology shares bounced.

Existing and new home sales for May will be out on Wednesday and Friday, respectively. The Markit flash manufacturing and service PMIs for June will also be out on Friday.

A few key firms will report earnings during this week’s between-season lull. Homebuilder Lennar (LEN), Adobe Systems (ADBE) and FedEx (FDX) will report on Tuesday. Oracle (ORCL) is expected to report 73 cents per-share in earnings on Wednesday. Accounting giant Accenture (CAN), Carnival (CCL) and Bed Bath & Beyond (BBBY) are also scheduled to report this week.

The 10-year Treasury closed at 2.15 percent on Friday. It traded as low as 2.10 percent last week, which will serve as this week’s support line. Short-term rates are in an uptrend following the Fed hike. The 3-month Treasury yield hit 1.03 percent on Friday. One- and three-month Libor climbed to 1.21 and 1.27 percent.

Crude oil entered the week below $45 a barrel. U.S. rig counts increased faster than production last week. Inventories remain high, with gasoline inventory growing last week. Libya, exempt from production cuts as it recovers from civil war, has begun aggressively boosting production. Analysts believe a deal with a German firm could lift production by 150,000 barrels per day and bring production over 1 million bpd by August.

Market Perspective for June 16, 2017

The Nasdaq declined for the second consecutive week due to the large-cap technology correction. The tech heavy index lost 0.9 percent. The Dow Jones Industrial Average, however, gained 0.5 percent with advances in financials, industrials and healthcare, all of which advanced on the week. The S&P 500 0.1 percent.

Amazon (AMZN) rattled retail and consumer sectors with its purchase of Whole Foods (WFM). Shares of Kroger (KR) fell 16 percent intraday on Friday, Target (TGT) nearly 12 percent and Wal-Mart 7 percent before they all bounced. Despite the rebound later in the day, SPDR S&P Retail ETF (XRT) fell to a new 52-week low.

SPDR Industrials (XLI) rose 1.61 percent following the resignation of General Electric (GE) CEO Jeff Immelt. Immelt will be replaced by John Flannery, 30-year GE veteran and head of the healthcare division. GE gained 4.66 percent on the week, and accounted for about one-quarter of the industrial sector’s increase over the past 5 days.

The Federal Reserve raised the Fed funds rate to a range of 1.00 to 1.25 percent on Wednesday. The U.S. dollar rallied after the Fed announcement, which included a plan to reduce its balance sheet by $10 billion a month starting later this year. The Fed will not sell assets, but instead forego the reinvestment of proceeds from maturing bonds. The Fed will also step up the amount by $10 billion every three months until it hits $50 billion.

The CPI in May was lower than expected, with further declines expected. The 10-year Treasury yield fell as low as 2.10 percent as the bond market digested slowing inflation. Corporate, investment-grade and Treasury bonds all rallied to new highs as long-term interest rates declined. The U.S. Dollar Index rallied.

Business inventories and retail sales came in lower than expected, and housing starts were 1.092 million, down from year-ago levels. Initial claims for unemployment were better than expected at 237,000. The Atlanta Federal Reserve lowered its second quarter GDP growth forecast to 2.9 percent.

Oil fell to a new 52-week low on Thursday following another large inventory build. Typically, gasoline inventory falls during the summer driving season, but it rose in 2016 and 2017 is following a similar trajectory. Oil production also remains high as shale costs fall.