Month: April 2018

The week ahead will include major earnings reports, economic data, and a Federal Open Market Committee (FOMC) meeting. The Federal Reserve will meet on Tuesday and Wednesday this week. No rate hike is expected this month.

Core inflation as measured by personal consumption expenditures (PCE) hit 1.9 percent in March. The headline number was 2.0 percent. The Fed’s target range for inflation is 2 to 3 percent.

April manufacturing PMIs, auto sales and March construction spending will be released on May 1st. Auto sales were strong in March, hitting an annualized pace of 17.5 million vehicles. Last week’s flash PMIs indicated strengthening in the manufacturing sector. Service PMIs are due later in the week. The big economic data point will be Friday’s April employment report. The consensus forecast calls for 194,000 new jobs and a drop in the unemployment rate to 4.0 percent.

Eurozone GDP will be out on Wednesday. Economists expect 2.5 percent growth year-on-year. They also forecast 1.3 and 0.9 percent headline and core inflation for the Eurozone.

Crude oil climbed past $69 a barrel as geopolitical tensions escalated between Israel and Iran. Energy was the best performing sector in Monday trading.

The 10-year Treasury yield continued its consolidation after cracking 3 percent last week. It finished Monday trading at 2.94 percent.

McDonald’s (MCD) kicked off this week with a strong earnings report. It delivered $1.67 per-share last quarter, up 20 cents from last year and 7 cents ahead of estimates. Shares rallied on Monday and the Dow outperformed the other major indexes. Analysts are looking for $2.69 per share from Apple (AAPL) after the bell on Tuesday. The company is expected to announce a large dividend increase or share buyback plan given the changes in tax laws.

Allergan (AGN), Pfizer (PFE), Merck (MRK), BP (BP), Gilead Sciences (GILD), Mondelez (MDLZ), Mastercard (MA), CVS Health (CVS), Kraft Heinz (KHC), Estee Lauder (EL), MetLife (MET), Tesla (TSLA), Southern Company (SO), Prudential Financial (PRU), Express Scripts (ESRX), Zoetis (ZTS), DowDuPont (DWDP), Alibaba (BABA), Celgene (CELG) and Cboe Global Markets (CBOE) will also report this week.

The S&P 500 Index was flat this week but led the major indexes. Earnings season and a potential breakthrough in North and South Korea relations boosted stocks.

First-quarter GDP growth was 2.3 percent according to the Bureau of Economic Analysis’ first estimate, better than the final consensus estimate of 2.0 percent. Lower personal consumption weighed on GDP growth. Wages and salaries increased 0.9 percent in the quarter, up from 0.6 percent in the prior quarter. This was the fastest quarterly wage growth in nearly 10 years.

Earnings growth for S&P 500 Index companies jumped from 18.3 percent last week to 23.2 percent this week as many companies smashed earning expectations. A healthy portion of the stronger earnings came from one-time tax gains as the tax cuts took effect in the first quarter. Energy earnings have risen 89.1 percent, technology 31.8 percent, financials 26.5 percent, industrials 23.5 percent.

Amazon (AMZN) highlighted the earnings strength in the technology sector. All of its major business segments reported stronger-than-expected earnings and faster than expected revenue growth. The company also raised guidance. Shares rallied more than 10 percent from the weekly low to the post-earnings high on Friday. SPDR Technology (XLK) fell 0.36 percent on the week. Amazon climbed 2.94 percent and lifted SPDR Consumer Discretionary (XLY) 1.10 percent.

Caterpillar (CAT) reported a strong first quarter and shares rallied. Then in the conference call with analysts, management said this might be the peak in earnings for 2018. Shares initially rallied on the positive earnings report, but then fell as much as 10 percent from those highs following the conference call.

Healthcare was the best performing of the large sectors this week. SPDR Healthcare (XLV) advanced 1.94 percent. Large-cap holdings in the fund such as AbbVie (ABBV), UnitedHealth Group (UNH) and Amgen (AMGN) drove results. All three delivered strong earnings report this week.

The 10-year Treasury yield cracked 3 percent this week, but it didn’t hit 3.05, the level being watched by many traders. The 10-year yield finished the week at 2.96 percent. Even though higher interest rates are bad news for real estate and utilities, they were two of the best performing sectors this week. SPDR Utilities (XLU) and SPDR Real Estate (XLRE) returned 2.72 and 2.61 percent, respectively.

Crude oil traded above $69 a barrel this week before ending at $68 and change. A bump in oil inventory surprised the market and kept crude from hitting $70 this week. SPDR Energy (XLE) was one of the better performing sector ETFs this week. It gained 0.63 percent.

The U.S. Dollar Index rallied 1.5 percent this week and broke out of a downtrend that stretches back to the end of 2016. The index also enjoyed its strongest two-week rally in the past year. Dollar strength didn’t affect international stock performance this week though. SPDR S&P 500 Index (SPY) gained 0.06 percent. iShares MSCI EAFE (EFA) fell 0.10 percent and iShares MSCI Emerging Markets (EEM) added 0.02 percent.

A rally of about 3 percent would take the S&P 500 Index (SPY) above the April high and break the recent series of lower highs.

Despite large Internet companies’ selling over the past month, PowerShares QQQ (QQQ) has been gradually recovering.

Small-caps tend to outperform in bull markets. iShares Russell 2000 (IWM) has the strongest looking chart right now. A rally of 4 percent would take IWM to a new all-time high.

The post February market has seen several intraday moves of 2 percent or more. When the correction completes, volatility should fall back into the prior zone, although a return to levels below 10 is unlikely.

The key asset to watch in the next week will be the 10-year Treasury yield. It broke out to a new 52-week high this week and touched 3.03 percent on Wednesday. The yield peaked at 3.04 percent in 2013. Technical traders are looking for a move to 3.05 percent, a new 7-year high.

Rising interest rates weighed on bond funds and rate-sensitive sectors such as real estate this week. Utilities held up better, and banking stocks rallied strongly. SPDR S&P Regional Bank (KRE) gained 5.5 percent this week.

Floating-rate funds held steady amid rising interest rates, while corporate, high-yield and investment- grade bonds all declined along with government bonds.

The U.S. Dollar Index rose with bond yields. The index peaked in December 2016 and this week’s rally broke the downtrend.

The relative underperformance of developed markets also decisively broke a trend this week. iShares MSCI EAFE (EFA) rallied sharply relative to iShares MSCI Emerging Markets (EEM). In the past month, EFA has gained 3.5 percent, EEM has fallen 1.5 percent.

China was a drag on emerging markets this week. The Chinese government held a meeting on April 23 and signaled it may do more to prop up economic growth. Chinese shares rallied on the news, but then gave up gains as it suggests the government fears a larger slowdown is underway. The line in the sand for iShares China Large-Cap (FXI) is $46.

The energy sector has seen several sharp rallies over the past 18 months, followed by consolidation. Crude oil remains in an uptrend. It is currently one of the strongest assets in the financial markets. A push to $70 might be enough for a new 52-week high in XLE.

Semiconductors pulled technology lower this week. Two of the best performing subsectors remain cybersecurity and cloud services. Since the market correction began in February, both have outperformed the overall technology sector.

Consumer staples and tobacco companies declined over the past week following less than stellar earnings reports. SPDR Consumer Staples (XLP) now yields 2.9 percent, Vanguard Consumer Staples (VDC) yields 2.7 percent.