Month: March 2018

Index Internet and social media stocks pulled the Nasdaq lower over the past week.

Market neutral and short-term bond funds have held up well. Vanguard Market Neutral (VMNFX) gained 1.54 percent in the 10 days through March 27. Calamos Market Neutral (CVSIX) saw a small decline, and Thompson Bond (THOPX) rose 0.26 percent.

Dividend funds have benefited from lower interest rates and strength in defensive sectors. iShares Edge USA Min Vol (USMV) has also outperformed the market by a substantial margin over the past several days.

Falling interest rates have lifted utilities, real estate, and consumer staples this week. This also reflects concentrated selling in technology as investors rotated from growth to value.

Dividend-paying technology stocks such as Microsoft (MSFT) have outperformed this week, while social media and Internet stocks have underperformed as Facebook’s (FB) troubles continued to mount. A decision by Uber and Nvidia (NVDA) to halt driverless car tests also sent shares lower. Tesla’s (TSLA) bonds tumbled after Moody’s downgraded them as well.

The 10-year yield is headed for a test of support at 2.6 percent. Falling yields lifted most bond funds, although high-yield bonds slipped as the credit spread rose to a one-month high.

Energy shares held up well this week. West Texas Intermediate crude hit a new intraday 2018 high over the past week. First- quarter energy earnings should be strong given oil prices.

The U.S. Dollar Index was volatile this week. The dollar triple bottomed this week, but it needs to climb above 90.5 to signal at least a short-term bullish breakout.

Foreign shares outperformed, led by strength in Japanese shares. The yen was the weakest major currency on the week, while emerging-markets currencies were flat.

Gold declined in the face of a stronger U.S. dollar.

Equities advanced on Monday as investors took advantage of discounted stocks. The S&P 500 gained 2.72 percent, while the Dow Jones Industrial average advanced 2.84 percent.  The Russell 2000 gained 3.26 percent.  Technology led Monday’s rally, despite last week’s significant drop and continued volatility in Facebook (FB). SPDR Technology (XLK) gained 3.81 percent and SPDR Financials (XLF) increased 3.24 percent.

This will be a shortened trading week. U.S. markets will close for Good Friday, and markets in Europe, Hong Kong and Australia will be closed on Friday and Monday.

The Conference Board’s March consumer confidence survey is due on Tuesday. Analysts anticipate an increase from February’s 130.8. The University of Michigan survey is forecast to match the prior month reading of 102. The final revision of fourth-quarter GDP should reflect 2.8-percent growth, up from the prior calculation of 2.5 percent. February pending home sales are expected to decline 4.7 percent.

Economists expect weekly jobless claims of 230,000 and a strong rise in personal income of 0.4 percent for February, with consumer spending and core inflation rising 0.2 percent.

The United States reached a deal with South Korea on trade last week and Treasury Secretary Steve Mnuchin is hopeful for a deal with China.

China launched its own oil futures contract on Monday. As the largest importer of oil, China is expected to become the third price setter for global oil prices, alongside the Brent contract in Europe and West Texas Intermediate in the United States. The Shanghai future priced oil at $68 a barrel versus $70 for Brent and $65 for WTI on Monday. Volume in the Shanghai contract exceeded that for the Brent contract in the first day of trading.

Kim Jong-un reportedly made a surprise visit to China on Monday ahead of talks with President Trump, his first ever. Relations have deteriorated in the wake of North Korea’s nuclear testing. The sudden meeting ahead of talks suggests the potential for a major deal. Although China has grown weary of North Korea in recent decades, it still regards the nation as a strategic ally with U.S. forces stationed in South Korea.

The U.S. Dollar Index declined to start the week to its lowest level in a month. The dollar fell against the euro but rallied against the yen. The 10-year Treasury yield moved higher on Monday but remained near its two-month low. The 30-year yield declined.

Walgreens (WAG) will headline a light week for earnings reports. Paychex (PAYX), lululemon (LULU), Factset Research Systems (FDS), Sonic (SONC), Constellation Brands (STZ) and BlackBerry (BB) will also report.

Facebook (FB) derailed the Nasdaq early in the week and it spilled over into broader selling later in the week. The Russell 2000 Index was the strongest index, falling 4.79 percent. The Nasdaq trailed with a loss of 6.95 percent. Facebook declined 14.07 percent.

Oil prices climbed above $65 a barrel this week, up from $62 at the end of last week. A larger-than-expected inventory drawdown boosted prices, as did political events. Saudi Crown Prince Mohammed bin Salman met with President Trump on Tuesday and on Thursday. President Trump also named John Bolton as National Security Adviser. Trump and Bolton both have issues with the Iran nuclear deal, an agreement that allows increased Iranian oil exports.  SPDR Energy (XLE) fell 0.48 percent on the week.

The Federal Reserve raised interest rates a quarter-point as expected this week. The Fed’s policy statement forecast three hikes in 2018.

February existing home sales beat expectations this week, rising to an annualized pace of 5.54 million versus forecasts of 5.40 million. February new home sales slightly missed expectations of 622,000 at 618,000, but this was higher than year-ago levels and consistent with the current expansion.

February durable goods orders rose 3.1 percent versus forecasts of 1.8 percent. Initial claims for unemployment hit 229,000, still near four-decade lows. The flash manufacturing PMI for March was 55.7, up from last month’s 55.3. The services PMI slipped to 54.1 versus 55.9 last month. The final numbers will be released at the start of April.

President Trump announced $50 billion in tariffs on Chinese imports in conjunction with a Section 301 investigation on Thursday. Tariffs will become law in June if there’s no agreement with China. President Trump wants an immediate reduction in the trade deficit of $100 billion, which would likely come via increased Chinese imports. China’s initial response was mild with only $3 billion in retaliatory tariffs. Equities with significant exposure to the Chinese market such as Caterpillar (CAT) fell in response. Chinese stocks also fell, and reports indicate the Chinese government bought Mainland equities on Friday.

The U.S.-China bilateral trade deficit is on pace to exceed $400 billion in 2018, equivalent to 2 percent of the U.S. economy and 3.6 percent of Chinese GDP. If the trade deficit fell by $100 billion and neither country substituted the lost imports and exports, U.S. GDP growth would increase roughly 0.5 percent while China’s could slow by 0.8 percent.

The U.S. Dollar Index fell 0.85 percent this week. SPDR S&P 500 (SPY) underperformed iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM) due to the weaker dollar and Facebook’s effect on technology shares.

Although the Federal Reserve hiked short-term interest rates this week, long-term rates declined. The 10-year Treasury yield fell as low as 2.80 percent on Thursday.

Earnings news was strong this week with FedEx (FDX) reporting $3.72 per share in earnings versus estimates of $3.08 and revenue of $16.5 billion. Tax cuts and improved efficiency have also lifted 2018 guidance. Nike (NKE) beat earnings and expects its North American sales slump to turn around in early 2019. Overseas growth drove earnings this year.

Micron Technology (MU) also beat earnings and raised guidance this week, but shares slumped with the broader market. General Mills (GIS) reported $0.71 per share in earnings this week, missing expectations by a nickel.