Month: January 2018

Rising bond yields weighed on equities Monday morning. The 10-year Treasury yield rose above 2.7 percent for the first time since April 2014. Real estate and utilities shares fell more than 1 percent during the trading day. Consumer staples, consumer discretionary, healthcare and financial shares traded flat or modestly higher. Biotechnology extended its bullish run from last week.

Economic data will be light this week. Personal income, consumer spending and inflation data for December were released on Monday. Personal income beat expectations, while consumer spending missed, but remained at a 6-year high. Core inflation was 0.2 percent, in line with estimates. Consumer confidence for January will be out on Tuesday, December pending home sales on Thursday, and manufacturing PMIs for various nations on Friday. The Federal Reserve will meet this week for Janet Yellen’s last meeting as Fed Chair. Speculators pushed the odds of a March hike to 75 percent on Monday.

While the 10-year Treasury yield hit a new multi-year high today, the 30-year Treasury yield is still below October levels at 2.9 percent. It traded at 3.2 percent in April 2014. The spread between these two narrowed on Monday to 0.24 percent. A year ago, it was 0.6 percent.

Crude oil prices eased on Monday, with West Texas Intermediate crude sliding to $65 and change. The U.S. dollar strengthened on higher interest rates and dovish comments from the European Central Bank. Comments from the ECB as well as Treasury Secretary Steve Mnuchin sent the euro exchange rate sharply higher last week. On Monday, ECB officials pushed back with an anonymous source saying the ECB will taper.

S&P 500 companies grew earnings 12 percent in the fourth quarter, based on reported earnings and estimates of companies yet to report. Energy, materials, financials, technology and utilities all reported faster earnings growth than the index. Lockheed Martin (LMT) beat revenue estimates on Monday and delivered strong guidance. Shares climbed nearly 2 percent in trading. The report also boosted the sector. iShares U.S. Aerospace & Defense (ITA) advanced on the day.

Later this week, we’ll hear from Pfizer (PFE), McDonald’s (MCD), Facebook (FB), Eli Lilly (LLY), Ebay (EBAY), Microsoft (MSFT), AT&T (T), PayPal (PYPL), Boeing (BA), Qualcomm (QCOM), Google (GOOGL), Altria (MO), Amazon (AMZN), Apple (AAPL),  Visa (V), DowDuPont (DWDP), Mastercard (MA), Amgen (AMGN), United Parcel Service (UPS), Merck (MRK), Chevron (CVX) and Exxon (XOM).

Equities hit new all-time highs this week, despite a weaker dollar and GDP miss. The Nasdaq led with a 2.31-percent gain. Earnings drove the market higher. Netflix (NFLX) reported strong subscriber growth and shares rallied nearly 25 percent on the week. Shares of Intel (INTC) and AbbVie (ABBV) also rose double-digits on Friday following strong earnings.

Healthcare was the best performing sector, led by biotechnology acquisitions and strong earnings Biogen (BIIB). SPDR S&P Biotech (XBI) gained 8.18 percent this week. SPDR Healthcare (XLV) rose 3.51 percent.

The fourth-quarter GDP growth rate missed expectations of 3 percent by 0.4 percent.  There was strong consumer spending in the report. Personal consumption increased 3.8 percent, versus 2.2 percent in Q3. By itself, this consumption was responsible for 2.6 percent growth in GDP. Nonresidential fixed-asset investment increased 6.8 percent, up from 4.7 percent in Q3. Rising imports shaved 2 percent from GDP growth, and trade produced an overall drag of 1.1 percent.

Other economic data was solid this week. The flash manufacturing PMI for January rose slightly from December, while the services PMI eased slightly. Weekly jobless claims fell to 233,000. New home sales declined to 625,000 from last month’s revised 689,000. Durable goods orders increased 2.9 percent in December, well above the 0.9 percent consensus estimate.

The 10-year Treasury yield opened higher on Monday but failed to extend its gains during the week. It finished at 2.66 percent. SPDR Utilities (XLU) gained 2.10 percent as interest rates paused.

Even though the dollar weakened substantially this week, domestic shares outperformed. SPDR S&P 500 (SPY) gained 2.20 percent and iShares MSCI EAFE (EFA) increased 1.51 percent. iShares MSCI Emerging Markets (EEM) did benefit, rallying 3.25 percent.

Crude oil started the week with a very brief dip before rallying. West Texas Intermediate crude oil finished the week above $66 a barrel.

Although stocks were strong this week, we saw continued profit taking in some industrial subsectors. The Dow Jones Transportation Index fell 1.59 percent. Most of the weakness was in the airline sector. U.S. Global Jets (JETS) fell 4.74 percent.

Caterpillar (CAT) earned $2.16 per share in the last quarter, well ahead of the $1.79 forecast. 3M (MMM) beat earnings, revenue and increased guidance for this year. Starbucks (SBUX) missed earnings estimates, but it became the latest company to announce higher worker pay thanks to tax reform. General Electric (GE) also missed estimates, sending shares to a new 52-week low.

The government shutdown ended on Monday after lawmakers agreed to a three-week spending bill. Stocks and the U.S. dollar rallied on the news. All major indexes finished higher on the day.

Shares of iShares Nasdaq Biotechnology (IBB) hit a new 52-week high, while SPDR S&P Biotech (XBI) hit a new all-time high. Merger activity drove the gains as Sanofi (SNY) purchased Bioverativ (BIVV) and Celgene (CELG) purchased Juno Therapeutics (JUNO).

Consumer discretionary shares rallied as Netflix (NFLX) hit a new all-time high ahead of earnings and reported subscription rates that far exceeded estimates. Consumer staples extended their weeklong streak of outperformance. Proctor & Gamble (PG) will report earnings this week. The stock is 12 percent of SPDR Consumer Staples (XLP). Wal-Mart (WMT), a top-10 holding in the fund, hit a new all-time high on Monday. CVS Health (CVS) and Pepsi (PEP) also rose strongly on the day.

The 10-year treasury yield extended its gains on Monday. It hit 2.66 percent, the highest level since September 2014. High-yield bonds held steady, but broad corporate and investment-grade bond funds followed government bonds lower.

West Texas Intermediate crude oil held steady at $63 a barrel on Monday. SPDR Energy (XLE) pushed to a new 52-wek high. Sub-sectors were strong across the board.

Fourth-quarter GDP growth will headline this week’s economic releases. The median forecast is 3 percent, the average 2.7 percent. The Atlanta Federal Reserve forecast 3.4 percent growth as of January 18. December existing home sales are forecast to hit an annualized pace of 5.73 million. New home sales are expected to hit an annualized pace of 680,000, down from last month’s spike to 733,000.  The flash PMIs for January will also be out this week with durable goods orders for December.

Earnings season is in full swing. Sectors and indexes with significant reporting this week will include biotechnology, consumer discretionary, healthcare, steel, and industrials. Halliburton (HAL), Netflix (NFLX), Petmed Express (PETS), Fifth Third Bancorp (FITB), Johnson & Johnson (JNJ), NVR Corp (NVR), Proctor & Gamble (PG), Travelers (TRV), Texas Instruments (TXN), Abbott Labs (ABT), Comcast (CMCSA), Ford (F), General Dynamics (GD), 3M (MMM), General Electric (GE), Caterpillar (CAT), Biogen (BIIB), Celgene (CELG), Freeport-McMoRan (FCX), Intel (INTC), Intuitive Surgical (ISRG), Northrop Grumman (NOC), Stabucks (SBUX), Colgate-Palmolive (CL), AbbVie (ABBV) and Honeywell (HON) are all on tap.