Month: February 2018

Technology, industrials, and transportation pulled indexes higher this week. The Nasdaq, Dow Jones Industrial Average and Dow Transports led performance.

Consumer discretionary was the week’s lone large sector underperformer. Comcast (CMCSA) and Disney (DIS) shares fell following Comcast’s bid for Fox’s Sky Broadcasting, igniting a bidding war.

Wal-Mart (WMT) continued to weigh on consumer staples more than a week after weaker-than-expected earnings. Rising interest rates sent utilities lower.

iShares PHLX Semiconductors (PHLX) led the technology sector higher after Qualcomm (QCOM) upped its bid for NXP Semiconductors (NXPI) to fend off Broadcom’s (AVGO) hostile bid for Qualcomm. Broadcom responded by lowering its bid for Qualcomm.

Federal Reserve Chairman Jerome Powell testified before Congress on Tuesday. Speculators pushed the odds of a third interest rate hike in September to above 60 percent and the odds of a fourth hike in December past 36 percent.

Although long-term bond yields rallied on the Fed chair’s comments, both finished the week lower.

One- and three-month Libor extended their gains as investors priced in rate hikes. Three-month Libor climbed above 2 percent.

Long-duration treasuries and high-yield bonds were the best-performing funds on the week. Floating-rate funds continued to perform steadily with another week of gains. Year-to-date, PowerShares Senior Loan Portfolio (BKLN) has increased 1 percent versus losses in the other major bond categories.

Despite inflation concerns, inflation break-evens remain below 2014 highs.

West Texas Intermediate crude held above $60 a barrel last week, but rising inventory sent prices lower on Wednesday. Energy equities are back to September levels after investors bid up prices on the expectation of $70 oil.

Next Monday, the head of OPEC is meeting with U.S. shale producers in Houston.

Housing data pulled back in January. New home sales remain within the current uptrend, but the annual sales pace slowed to 593,000. The sales spike seen in late 2017 was likely hurricane-related. Existing and pending sales slowed as well. Sales growth could slow further in the next month or two as rate hikes filter through to mortgage rates and home buying decisions.

The U.S. Dollar Index hit a 6-week high this week. It is approaching the September 2017 low. The short-term outlook will remain bullish if the greenback can take out this level. The euro has much farther to fall to reach its September high. The yen continues to weigh on the Dollar Index.

Italian elections could prove to be a wildcard for the euro. iShares MSCI Italy (EWI) will be one fund to watch on Monday in case there’s an electoral surprise.

The stronger dollar helped SPDR S&P 500 Index (SPY) outperform the iShares MSCI EAFE Index (EFA) last week. The relative price of SPY to EFA is back the 2017 high, a level that was achieved when the U.S. Dollar Index was 14 percent higher. If the dollar extends its rally it will widen the performance gap.

iShares MSCI Emerging Markets (EEM) failed to extend its relative outperformance again this month. EEM has failed repeatedly since August. Over the past 7 months, SPY has gained 12.45 percent and EEM 12.72 percent. This could be a consolidation, but given the performance of the dollar and developed markets, it is starting to look like a turning point for the U.S. dollar and domestic equities.

The Dow Jones Industrial Average led equities higher on Monday. Blue-chip Dow components Cisco (CSCO), Intel (INTC), 3M (MMM), American Express (AXP) and Travelers (TRV) saw impressive gains, and Apple (AAPL) also rallied after rumors of three new phones in 2018 emerged.

Federal Reserve Chairman Jerome Powell will testify before Congress on Tuesday and Thursday. Speculators put the odds of a March rate hike at 87 percent and informal polling shows investor expectations are above 90 percent.

Home sales slowed in January to an annualized pace of 593,000. This is off the peak pace of 696,000 in November and down about 1 percent from January 2017, but still well within the uptrend in place since the home construction industry bottomed out in early 2011. The dip is in line with last week’s existing home sales data. Pending sales for January will be released on Wednesday.

The Case-Schiller home price index for December, January durable goods, core capital equipment orders, and February consumer confidence readings will be out on Tuesday. Manufacturing and service PMIs for February will be out on Thursday. The University of Michigan’s consumer sentiment survey is due on Friday.

Economists forecast revised fourth-quarter GDP growth will be lowered 0.1 percent to 2.5 percent, with jobless claims staying near 45-year lows. Construction spending, personal income and consumer spending for January are all expected to slow from December’s pace.  February auto sales are forecast to rise from January.

Bond yields retreated on Monday with the 10-year yield falling back to 2.85 percent. Bonds rallied across the board, with government, investment-grade, corporate, high-yield and floating-rate funds all advancing. Equity investors ignored the dip. SPDR Financials (XLF) rallied more than 1 percent on the day, while SPDR Utilities (XLU) suffered a small loss.

The S&P 500 Index has grown earnings 14.8 percent in the fourth quarter with 90 percent of companies reporting. Priceline (PCLN), Vale SA (VALE), EOG Resources (EOG), Express Scripts (ESRX), Salesforce.com  (CRM), Lowe’s (LOW), Analog Devices (ADI), Anheuser-Busch (BUD), Best Buy (BBY), Vmware (VMW), J.C. Penney (JCP) and Footlocker (FL) will all report earnings this week.

The Nasdaq rose 1.35 percent over the week’s four trading days. The Dow Jones Industrial Average gained 0.36 percent, the S&P 500 Index 0.55 percent, and Russell 2000 0.37 percent, with the week’s most significant activity occurring in the last two hours of Friday trading.

SPDR Technology (XLK) and Consumer Discretionary (XLY) gained 1.52 and 1.05 percent on the week. Financials and industrials rose 0.5 percent. SPDR Utilities (XLU) climbed 0.46 percent as interest rates eased at the end of the week.

Qualcomm (QCOM) boosted its offer for NXP Semiconductors (NXPI) in an effort to fend off Broadcom’s (AVGO) hostile offer for Qualcomm. Broadcom lowered its bid for Qualcomm in response, from $82 to $79. iShares PHLX Semiconductor (SOXX) rallied 2.47 percent on the week.

Walmart (WMT) was the notable earnings miss this week. Slower-than-expected online growth and slightly lower guidance sent shares to their largest one-day loss in nearly 30 years. As a top-10 component in the consumer staples sector, Wal-Mart’s miss thumped related funds such as SPDR Consumer Staples (XLP), which fell 2.23 percent on the week.

The flash manufacturing and service PMIs for February showed a modest uptick in economic activity. The final number will be out next week. Existing home sales slowed to an annualized pace of 5.38 million in January, down 4.8 percent from a year ago. Prices increased 5.8 percent from a year earlier as inventory fell to 3.4 months. Jobless claims fell to 222,000 last week.

The Federal Reserve released the minutes of its January FOMC meeting. Investors interpreted the minutes as slightly hawkish, bumping up the odds of rate hikes at the March, June and December meetings. The minutes pushed the 10-year bond to a new multi-year high of 2.95 percent. The 30-year Treasury climbed above 3.2 percent. Both eased later in the week.

Most bond funds lost ground with rates rising. PowerShares Senior Loan Portfolio (BKLN) gained 0.20 percent as floating-rate funds took rising rates in stride.

The U.S. Dollar Index rallied 0.9 percent this week. In addition to the hawkish Fed minutes, the minutes from the European Central Bank’s last meeting showed concern about a currency war with the United States. Since the United States is not competitively devaluing the dollar, traders sold the euro, taking it as a sign the ECB is worried about euro strength.

The rising dollar weighed on international funds. SPDR S&P 500 (SPY) gained 0.60 percent, but iShares MSCI EAFE (EFA) fell 0.06 percent. iShares MSCI Emerging Markets (EEM) advanced 0.34 percent.

Crude oil climbed back above $63 a barrel this week after a larger-than-expected inventory draw. Analysts expected crude inventory would rise 1.8 million barrels, but instead it fell 1.6 million as exports increased.

Hewlett Packard (HPQ), Hewlett Packard Enterprise (HPE), Intuit (INTU), Advance Auto Parts (AAP), Southern Company (SO), and Medtronic (MDT) beat earnings this week. The S&P 500 Index has a blended earnings growth rate of 14.8 percent with only 10 percent of the index left to report.