Month: September 2017

Small-caps drove the stock market to new all-time highs this week. The Russell 2000 Index gained 2.78 percent. The S&P 500 Index saw a smaller increase of 0.68 percent. SPDR Financials (XLF) climbed 1.65 percent on the week, and SPDR S&P Regional Banks (KRE) advanced 4.30 percent.

In the futures market, the odds of a December rate hike were still over 70 percent on Friday. The 10-year Treasury yield climbed above 2.3 percent, up from 2.2 percent last week.

Rising interest rates pushed the U.S. dollar to a 2-month high. Currency weakness was concentrated in emerging markets, led by a decline in the Chinese yuan. WisdomTree Emerging Currency (CEW) fell 1.40 percent. iShares MSCI Emerging Markets (EEM) is down 1.26 percent.

Durable goods orders in August increased 1.7 percent, better than expectations. New home sales data was weaker than expected, but investors brushed off the news. iShares U.S. Home Construction (ITB) gained 4.46 percent on the week and hit a new 52-week high. Initial claims for unemployment were 272,000 the week prior, in line with expectations. Second-quarter GDP growth was revised higher to 3.1 percent, also matching expectations.

Energy rallied, but signs of weakness appeared late in the week. SPDR Energy (XLE) climbed 1.87 percent. West Texas Intermediate crude closed above $50 for the second week, but shares remain heavily overbought.

Micron Technology (MU) beat earnings estimates by 15 percent this week. iShares Semiconductors (SOXX) hit a new 52-week high on Friday. Nike beat estimates by 19 percent, but shares fell after revenues in North America reportedly fell.
Biotechnology rallied 1.14 percent this week. Healthcare providers advanced 1.88.

The Russell 2000 Index joined the S&P 500, Dow Jones Industrial Average and Nasdaq in record territory over the past week.

Financials rallied after last week’s Federal Reserve meeting. As of today, the odds of a December rate hike are at 83 percent.

Banking subsector ETFs are up roughly 10 percent and broker dealers have risen close to 8 percent over this period. Insurance has underperformed due to hurricanes.

Financials hit a new 2017 high on Wednesday.

The healthcare sector has traded lower over the past two weeks. Biotech is still up a solid 6 percent, while healthcare providers are flat as uncertainty surrounding healthcare reform persists.

Defense stocks have continued to pull the industrial sector higher. The rhetoric around North Korea has intensified on both sides in the past week. General Electric (GE) has dragged on sector performance. It is the largest holding in the market capitalization-weighted indexes.

The Dow Transports, another key subsector within industrials, also moved on to a new 52-week high over the past week.

SPDR S&P Oil & Gas Equipment & Services (XES) has gained 22.7 percent with the recent energy rebound. Short-term indicators show energy is overbought. This doesn’t signal a correction is coming, but it warns us that a pullback is more likely. The chart of XES shows the fund nearing the bottom of the 2016 trading range.

Materials stocks rallied in the wake of hurricanes Harvey and Irma. Over the past few weeks, chemicals have moved higher and timber held steady. Demand for new homes and repairs should boost timber. Slowing economic data in China has weighed on copper and coal.

Shares of PowerShares Dynamic Building & Construction (PKB) broke out to a new 52-week high and has been one of the better performers among the “hurricane” plays.

GraniteShares Gold Trust (BAR) has launched a new physical gold ETF. It is the lowest cost gold fund with an expense ratio of 0.20 percent. Below is a chart comparing the performance of iShares Comex Gold (IAU) to SPDR Gold Shares (GLD). IAU charges 0.25 percent, GLD 0.40 percent. IAU cut its fee in 2010 as the chart clearly shows.

Equities opened in the red on Monday due to weakness in the technology sector. Apple (AAPL), Amazon (AMZN) and Google (GOOGL) slipped more than 1 percent. Facebook (FB) fell more than 3 percent, and Netflix (NFLX) more than 4 percent. West Texas Intermediate crude climbed near its May 2017 high of $52. Healthcare, consumer staples and utilities also rose in early trading.

New homes sales for August will be out on Tuesday. Economists anticipate 588,000, up from 571,000 in July. Pending home sales are due on Wednesday. The consensus forecast calls for a 1.1-percent rise in August durable goods. Core capital goods orders in August are also expected to reflect an increase. The third and final revision to second-quarter GDP will be released on Thursday. Economists have predicted growth accelerated by 0.1 percentage points, to 3.1 percent.

Last week we saw a surprisingly strong initial claims number. Analysts predicted 302,000 new unemployment claims, but the actual number was 259,000. Claims are expected to rise to 270,000 this week.

Friday’s updated GDP report will include personal income, consumer spending and inflation data for August. The University of Michigan’s consumer sentiment survey data will also be available on Friday.

Instability in European politics following tumultuous elections in Germany and Italy spilled over into currency markets, with the euro weakening versus the U.S. dollar. A short-term pullback in the euro looks likely as we head into October.
Biotechnology and pharmaceutical shares rallied on Monday, but weakness in healthcare providers weighed on the sector.
The defense sector pulled back on Monday after climbing into short-term overbought territory last week. iShares U.S. Aerospace & Defense (ITA) declined on Monday, despite North Korean threats. iShares MSCI South Korea (EWY) declined on Monday as well.

1-month Libor is approaching its 2017 high, while 3-month Libor is at a new high of 1.33 percent. A Fed rate hike would lift the funds rate to 1.25 to 1.50 percent. Speculators in the futures market lifted the odds of a December rate hike to 73 percent last week. Virtus Seix Floating Rate High Income (SAMBX) pushed back to its 52-week highs last week. Thompson Bond (THOPX) is also at 52-week highs.

Micron Technology (MU) and Nike (NKE) will report earnings on Tuesday. Analysts forecast $1.73 per share at Micron and $0.48 from Nike. In the year-ago quarter, Micron lost $0.05 per share. The stock has gained 58 percent in 2017, more than double the return of iShares Semiconductors (SOXX). Nike has underperformed the consumer discretionary sector, gaining 6.0 percent versus 10.8 percent for SPDR Consumer Discretionary (XLY). The underperformance in 2017 has caused NKE to slip to number 11 in XLY.

ConAgra (CAG), Accenture (ACN), Blackberry (BBRY), RiteAid (RAD) and KB Home (KBH) are also scheduled to report this week.