Month: March 2018

The Federal Reserve hiked interest rates a quarter point as expected this week. Fed officials forecast two more rate hikes in 2018 and upped its 2019 forecast from 2 to 3 rate hikes.

Stocks and gold rallied in the wake of the hike, while bonds and the U.S. dollar declined.

Dow Industrials was the best performing index this week, due largely to its lack of exposure to Facebook (FB). The social media giant was hit by a privacy scandal that sent shares sharply lower and pulled the Nasdaq with it. Many ETFs covering the technology and Internet sectors have 5 to 7 percent of their assets in Facebook.

Industrials led among the larger sectors following a rebound in transports. Shares of FedEx (FDX) popped on Wednesday following a strong earnings report. The firm earned $3.72 per share in the prior quarter, beating estimates of $3.11 per share.

Energy was by far the best performing of the smaller S&P 500 sectors after oil prices rallied on a surprisingly large decline in crude inventories.

Facebook (FB) derailed the technology sector this week. The performance gap between technology ETFs largely came down to their Facebook exposure.

Homebuilders rallied on Wednesday following stronger-than-expected existing home sales in February. Sales hit an annualized pace of 5.54 million. Economists forecast 5.40 million. New home sales for February will be out on Friday.

The 10-year and 30-year Treasury yields rose in the past week but remained below 2018 highs.

One-month Libor has more than priced in the Fed’s rate hike to a range of 1.50 to 1.75 percent and may be starting to price in a second hike in June. The acceleration in Libor signals a shift in market sentiment.

The rise in interest rates weighed on long-term government bonds, corporate and investment-grade bonds. High-yield bonds and floating-rate funds were higher on the week.

The Hong Kong dollar has weakened steadily against the dollar in recent weeks, with the greenback climbing to 7.8460. Hong Kong pegs its dollar to the U.S. dollar in a range between 7.75 and 7.85.

The U.S. dollar, euro, and emerging-market currencies remained in consolidation patterns this week.

The S&P 500 Index has outperformed the MSCI EAFE for many weeks. Japanese stocks underperformed the MSCI EAFE, while Eurozone and emerging-market stocks outperformed both the EAFE and the S&P 500 Index.
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Consumer staples approached their 52-week low over the past week. Rising interest rates have weighed on the sector, as has the market’s overall strength. In relative terms, the consumer staples sector has significantly underperformed since the start of 2016.

Equities closed lower on Monday following a Facebook privacy scandal. Shares declined as much as 8 percent on the day, closing with a loss of 6.7 percent. Facebook is 5.5 percent of PowerShares QQQ (QQQ) and 6.9 percent of SPDR Technology (XLK).

Economic data will include Wednesday’s Federal Open Market Committee meeting. Investors expect Federal Reserve officials will vote to raise interest rates 25 basis points. The odds of a rate hike are 95 percent in the futures market.

February new and existing home sales, the flash PMIs for March, weekly jobless claims, and durable goods orders will be out later in the week. Last week, housing starts and building permits missed expectations, but economists are more optimistic about this week’s reports. Existing home sales are forecast to match January’s annualized pace and new home sales are expected to jump from an annualized pace of 593,000 in January to 630,000 in February.

Defense stocks were among the strongest performers on Monday. iShares U.S. Aerospace & Defense (ITA) gained 0.27 percent.

Overseas, the Bank of England will meet this week. On Monday, the British pound jumped after a breakthrough in Brexit negotiations with the European Union. Chinese housing price growth slowed in February.

The euro was up slightly after a European Central Bank source said the bank was “comfortable” with the market expecting a rate hike in the first quarter of 2019. If other leaks are accurate, the ECB plans to taper quantitative easing from September to December before starting its rate hike cycle. Euro strength translated into U.S. Dollar Index weakness, but WisdomTree Bloomberg U.S. Dollar Bullish (USDU) was up 0.08 percent on the day as emerging-market currencies weakened.

Earnings season is largely over, but Oracle (ORCL) and FedEx (FDX) will report this week. Oracle is the second-largest holding in iShares North American Software (IGV). Analysts are optimistic about FedEx’s per-share profits. They project a 30 percent increase from the year-ago quarter. Other companies reporting this week will include General Mills (GIS), Nike (NKE), Accenture (ACN), Micron Technology (MU).

Equities pulled back slightly from last week’s strong rally. The Russell 2000 slipped 0.69 percent on the week to lead performance. The Russell 2000 has returned 3.58 percent over the past two weeks.

The NFIB small business confidence index rose to 107.6 in February. Homebuilder confidence has eased slightly but remains close to two-decade highs. Consumer confidence jumped in March according to the University of Michigan’s survey. Economists forecast a rise to 99.5, but the reading hit 102.

February housing starts and permits fell from year-ago levels in February as multi-family units declined. Industrial production was much stronger than expected in February, rising 1.1 percent. Initial claims for unemployment were 226,000 last week, slightly better than expected. The Job Openings and Labor Turnover Survey (JOLTS) showed 6.3 million job openings in January, up from 5.7 million a month earlier.

Long-term interest rates fell to a one-month low this week. The 10-year treasury yield declined to 2.85 percent, the 30-year to 3.08 percent. SPDR Utilities (XLU) gained 2.51 percent. The dip in rates also coincided with lower inflation expectations. Both the consumer price index (CPI) and core inflation rose 0.2 percent in February, in line with expectations. Retail sales missed expectations, rising 0.2 percent ex-autos instead of the forecast 0.4 percent.

The U.S. Dollar Index advanced this week. SPDR S&P 500 (SPY) fell 1.28 percent, while iShares MSCI EAFE (EFA) declined 0.44 percent and iShares MSCI Emerging Markets (EEM) fell 1.09 percent.

Falling gasoline inventory boosted crude prices this week and offset a large rise in crude oil inventory. Oil prices gained 1.73 percent today. Grain prices fell this week and PowerShares DB Agriculture (DBA) lost 0.83 percent. This dip contributed to falling inflation expectations.

The White House nixed Broadcom’s (AVGO) bid for Qualcomm (QCOM) this week, clearing the way for a possible Qualcomm bid from Intel (INTC). The White House also confirmed ambitions to reduce the trade deficit by $100 billion. Increased Chinese imports of U.S. manufactured goods and energy are the preferred method, but the Trump Administration is also preparing tariffs that could reach $60 billion if no deal is reached.

Ulta Beauty (ULTA) and Dollar General (DG) rallied after earnings reports this week, while Broadcom (AVGO) and Tiffany’s (TIF) slipped.