Month: December 2017

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Market Perspective for December 29, 2017

Equities gave up the Santa Claus rally in the last day of trading. The Dow Jones Industrial Average was the best performing index this week with a 0.14-percent decline. The Nasdaq fell 0.81 percent after slower-than-expected iPhone sales. Apple (AAPL) is by far the largest component in the Nasdaq. The Nasdaq finished the year with a gain of 28.24 percent, however, leading index performance. The Dow Industrials and S&P 500 both rallied more than 20 percent (including dividends), while the Russell 2000 increased 14.40 percent.

Technology led 2017’s sector performance by a wide margin. SPDR Technology (XLK) advanced 33.90 percent on the year. Healthcare, industrials, financials, and consumer discretionary clustered together with returns ranging from 22 to 24 percent. Materials outperformed the market with a gain of 24.01 percent. Utilities and consumer staples saw solid returns of 11.90 and 12.98 percent. iShares U.S. Telecommunications (IYT) fell 11.86 percent and SPDR Energy (XLE) slipped 1.06 percent.

Global X Argentina (ARGT) returned more than 50 percent in 2017, iShares MSCI Hong Kong (EWH) and Turkey (TUR) returned nearly 40 percent. International shares peaked around May for developed markets and September for emerging markets. iShares MSCI Emerging Markets (EEM) climbed 37.00 percent in 2017 and iShares MSCI EAFE (EFA) rose 24.90 percent. Since the start of June, however, SPDR S&P 500 (SPY) has outperformed EFA by 3 percentage points.

The U.S. Dollar Index lost a little more than 1 percent in the final four trading days. The euro cracked $1.20 after flash German inflation for December came in higher than anticipated. The 10-year Treasury yield finished at 2.41 percent. It spent most of the year between 2.2 and 2.5 percent. West Texas Intermediate crude closed above $60, a level it hasn’t sustained since 2015. Gold rallied past $1300 and copper rallied past $3.30 before dipping on the last day of trading.

Economic data was light this week. Consumer confidence cooled in December, according to the Conference Board’s survey. Despite the small dip this month, 2017 was the best year for consumer confidence since 2000. The Atlanta Federal Reserve’s GDP Now Model ended the year with a fourth-quarter growth forecast of 2.8 percent, in line with the economist consensus.

The economy grew at its fastest pace since 2015 this year, with unemployment falling near two-decade lows and initial claims falling to 44-year lows. New home sales accelerated into the close of the year. After spending most of 2016 and 2017 around an average annualized pace of 550,000, sales climbed to 733,000 in November.

Tax reform drove the Dow Transports to wide outperformance, followed by a small outperformance by the Dow Industrials. The Nasdaq underperformed.

Industrials led the larger sectors, followed by consumer discretionary and financials, while technology trailed.

Rising oil prices brought energy to the top of sector performance, while utilities were stung by rising interest rates.

The transportation sector rose on continued FedEx (FDX) strength, airline and railroad shares.

West Texas Intermediate crude oil briefly touched $60 over the past week. Energy stocks have performed poorly in 2017, but they bottomed in August.

SPDR S&P Oil & Gas Equipment & Services (XES) remains down 38 percent and SPDR S&P oil & Gas Exploration & Production (XOP) 21 percent, since January 1, 2015,

Natural gas prices have remained depressed due to high supply. Solar stocks have moved higher with energy prices. Guggenheim Solar (TAN) is near its 52-week high.

Commodities stocks are also signaling increased economic activity in 2018. Steel, coal and copper producer ETFs, as well as SPDR Materials (XLB), have all hit new 52-week highs.

SPDR Utilities (XLU) has erased six months of gains over the past six trading days since tax reform was passed.

Most bond funds have moved higher as interest rates eased, with investment-grade and high-yield bonds enjoying the largest increase.

Apple (AAPL) dipped on Tuesday following reports of slower-than-expected iPhone X sales. Apple shares have traded sideways over the past two months. Amazon (AMZN) pushed towards a 52-week high following a strong holiday sales season.  Networking has led the overall tech decline.

Healthcare fell with medical device shares last week. Biotechnology and pharmaceuticals both rallied.

Technology has been the best performing sector in the stock market this year. Technology select Sector SPDP (XLK) has a 33- percent gain heading into the final trading days. It is also the largest sector in the Nasdaq and S&P 500 indexes. Other top sectors in the S&P 500 Index all clustered between 20 and 22 percent returns.

The other S&P 500 sectors saw much smaller gains, and losses in energy and telecom. Since these sectors have lower weights in the indexes, they didn’t impact overall returns as much.

Financials, industrials and energy year-end rallies have lifted the performance of value relative to growth.