Month: April 2018

Stocks opened the week mixed. The flash manufacturing and services PMIs strengthened in April. The Markit manufacturing PMI is at its highest in three years. Existing home sales in March were stronger than expected.

Rising interest rates kept a lid on stocks after the 10-year Treasury yield hit 2.99 percent at noon before pulling back. Financials benefited from higher rates, and banks were among the better performing subsectors on the day.

First-quarter GDP growth will headline the week’s economic data. The New York Fed’s Nowcast model is far more optimistic at 2.9 percent growth as of April 20.

April consumer confidence will also be released this week. Economists forecast a slight decline from March. They see a slight rise in the University of Michigan’s consumer sentiment survey out later in the week. New home sales are expected to have hit an annualized pace of 630,000 in March.

The U.S. Dollar Index and the Bloomberg Dollar Index broke out of downtrends on Monday. Both peaked in December 2016 and have steadily declined as the dollar weakened against the euro, yen and emerging-market currencies.

North Korea will freeze nuclear and missile tests as a prelude to negotiations with the United States. China and the United States both spoke positively about a resumption in trade negotiations.

Major technology companies and Dow components will  report earnings this week, including Alphabet (GOOGL), Verizon (VZ), 3M (MMM), Coca-Cola (KO), SAP (SAP), Lockheed Martin (LMT), United Technologies (UTX), Texas Instruments (TXN), Caterpillar (CAT), Eli Lilly (LLY), Facebook (FB), Visa (V), AT&T (T), Boeing (BA), Comcast (CMCSA), PayPal (PYPL), Amazon (AMZN), Microsoft (MSFT), Intel (INTC), Royal Dutch Shell (RDS.A), AbbVie (ABBV), Pepsi (PEP) and Amgen (AMGN).

Halliburton (HAL), Chubb (CB), Biogen (BIIB), Travelers Companies (TRV), Sherwin-Williams (SHW), Advanced Micro Devices (AMD), Qualcomm (QCOM), Aflac (AFL), General Dynamics (GD), GlaxoSmithKline (GSK), Northrop Grumman (NOC), Baidu (BIDU), Altria (MO), Union Pacific (UNP), United Parcel Service (UPS), Bristol-Myers (BMY), Starbucks (SBUX), Raytheon (RTN), ConocoPhillips (COP), Time Warner (TWX), Exxon Mobil (XOM) and Chevron (CVX) are also scheduled to report this week.

Energy, industrials, consumer discretionary and financials were the strongest sectors this week. SPDR Energy (XLE) led with an increase of 2.65 percent after oil prices climbed above $68 a barrel during the week. SPDR S&P Oil & Gas Exploration & Production (XOP) increased 3.72 percent. SPDR Financial (XLF) advanced 1.75 percent. Alcoa (AA) rallied strongly on rising aluminum prices and its earnings beat. The small-cap Russell 2000 Index led the major indexes with an increase of 0.94 percent.

Netflix (NFLX) and Amazon (AMZN) lifted the consumer discretionary sector this week. Netflix beat earnings estimates and gained 5.10 percent on the week. Amazon CEO Jeff Bezos revealed that Amazon now has 100 million Prime subscribers generating $10 billion in revenue each year. Shares rose 6.73 percent. SPDR Consumer Discretionary (XLY) gained 1.72 percent.

The blended earnings growth rate (reported earnings and remaining forecasts) keeps rising as companies beat on earnings and revenue, but a few companies did not meet investors’ expectations. Philip Morris International (PM) fell 17.19 percent on the week after Thursday’s earnings report. It beat earnings, but growth of new products missed expectations. Proctor & Gamble (PG) fell 4.71 percent. Slow growth and rising costs are hurting P&G with much of the consumer staples sector. SPDR Consumer Staples (XLP) fell 4.01 percent on the week.

Taiwan Semiconductor (TSM) slumped 8.66 percent on the week following a miss on earnings and revenue forecasts and neutral guidance. iShares Semiconductor (SOXX) declined 4.48 percent. International Business Machines (IBM) beat earnings, but disappointed investors. It slid 7.51 percent on the week. SPDR Technology (XLK) declined 0.18 percent.

General Electric (GE) investors responded positively to its earnings report, sending shares up 7.78 percent on the week.

Economic data was strong this week. March retail sales, housing starts, building permits, industrial production, and capacity utilization all reported better-than-expected data. Homebuilder confidence eased in April but remained near two-decade highs. Initial claims for unemployment were 232,000, still near four-decade lows.

The 10-year Treasury yield rallied to a new 52-week high on Friday to finish at 2.95 percent. The 30-year Treasury yield hit 3.14 percent. SPDR Utilities (XLU) rallied early in the week and finished with a gain of 1.04 percent.

Rising interest rates accompanied a rally in the U.S. Dollar Index. iShares MSCI EAFE Index (EFA) gained 0.34 percent, SPDR S&P 500 (SPY) 0.64 percent. Weakness was concentrated in emerging markets. iShares MSCI Emerging Markets (EEM) fell 0.74 percent.

Amazon (AMZN) said it was shelving its pharmacy plans for now. It had obtained a pharmacy license last year and many pharmacy stocks underperformed as a result. This week those shares outperformed. iShares U.S. Healthcare Providers (IHF) gained 2.43 percent. SPDR Healthcare (XLV) rose 0.28 percent on the week.

Equities rallied this week as geopolitical tensions eased. Earnings season has been positive with many companies beating estimates. The Dow Transports outperformed, while rebounding technology shares boosted the Nasdaq.

The industrial sector led this week’s performance.

Oil, aluminum, and precious metals all rallied on the week. Sanctions on Russia boosted aluminum prices. Japan also cut off Russian imports to avoid secondary sanctions from the U.S.

Alcoa (AA) has gained 25 percent over the past 10 days, while Kaiser Aluminum (KALU) has risen nearly 10 percent. VanEck Russia (RSX) fell as much as12.5 percent following U.S. sanctions.

Software and Internet stocks led the technology sector. Social media continued to lag.

Bank stocks fell this week based on relative performance and the move in interest rates. The banking sector has been oversold. The charts below reflect the relative performance of SPDR S&P Bank (KBE) and Regional Banking (KRE) versus the S&P 500 Index, with the dashed blue line showing the 10-year Treasury yield.

Interest rates edged higher this week, pulling long-term government, investment grade and corporate bond funds lower. High-yield and floating rate funds rallied as credit risk tumbled.

Medical providers and devices pulled the healthcare sector higher this week. Shares of Express Scripts (ESRX), CVS Health (CVS) and Walgreen’s (WBA) all rallied after Amazon (AMZN) retreated from the pharmacy business.

Energy rallied on Wednesday with crude oil crossing $68 a barrel on a larger-than-expected inventory draw. The more volatile subsectors climbed nearly 6 percent on the week, while the broad energy sector climbed more than 4 percent.
Natural gas stocks also joined in the rally.

Crude oil doesn’t have much technical resistance between here and $100 a barrel. Fundamental factors will take on greater importance and will decide if this rally goes back to triple digits or hits resistance at a lower price point.

Domestic U.S. stocks outperformed thanks to strength in technology shares. Weakness in Russia caused emerging markets to underperform.

China’s is still slowing. The central bank slashed reserve requirements by 1 percent to help the economy. It’s also rumored the government bought stocks to keep the main Shanghai Composite from falling below 3000.

The relative price chart of the S&P 500 and Shanghai Composite illustrates Chinese shares’ underperformance since summer 2015, just before the Chinese central bank devalued the yuan.

Global X Silver Miners (SIL) recently broke the downtrend in place since its 2017 peak. Support over the past 2-plus years is at $30. Gold and gold mining shares have not broken out.