Month: June 2018

The Russell 2000 and Nasdaq hit new all-time highs in Wednesday trading.

Consumer discretionary led S&P 500 sectors this week. Of the 1.42 percent return through midday on Wednesday, 1.28 percentage points or 90 percent was due solely to gains from Amazon (AMZN) and Netflix (NFLX). The latter stock rose nearly 10 percent on the week. Netflix has gained 15 percent since a judge cleared the way for the AT&T (T) and Time Warner (TWX) merger. Days after the ruling, Comcast (CMCSA) launched a competitive bid for Fox (FOX) assets. Disney (DIS) will launch a rival streaming service next year and it was the likely buyer of Fox’s assets, with Fox scheduling a July shareholder vote on Disney’s offer.

Utilities were the best performing stocks overall as long-term interest rates declined, though they remain down for the year.

Internet companies led the technology sector this week. Semiconductors were the worst performing sub-sector, hurt by a dip in Intel (INTC) shares. Micron Technology (MU), a top 10 holding in iShares PHLX Semiconductor (SOXX), increased after the bell today.

Biotechnology pulled the healthcare sector higher this week, but pharmaceuticals and providers also delivered solid gains. Shares of SPDR S&P Biotech (XBI) broke out to a new all-time high.

Insurance and investment subsectors have weighed on financials this week, but small banks enjoyed a strong rally. Brokerage and investment companies are trading above their January high, but below their March high.

Falling interest rates boosted long-term bonds this week. Floating-rate funds saw a small decline after Libor stabilized. It advanced in the run-up to the rate hike last week and won’t start rising again until we get closer to the September meeting.

President Trump announced he wants tariffs on $200 billion in Chinese goods this week. Industrials underperformed because investors worry about potential retaliation against firms such as Boeing (BA) and Caterpillar (CAT). The biggest loser was soybeans because it is a major export to China that can be easily substituted.

A massive trade in VanEck Emerging Market Local Currency Bond (EMLC) was made today. The trade was more than 6 times the average daily volume over the past three months. While the trade itself is bearish on the surface, it may represent capitulation and potentially a short-term bottom for the asset class. EMLC has been in a constant decline since mid-April.

Emerging and developed markets diverged from the U.S. market in mid-April. Since then, Invesco DB U.S. Dollar Index Bullish (UUP) has outperformed along with SPDR S&P 500 (SPY). Developed market funds have suffered due to the weaker dollar. WisdomTree Europe Hedged Equity (HEDJ) trails SPY by less than 2 percent over this period. Emerging market stocks have fared worse, but that’s also largely been the result of weakening currencies. iShares MSCI Emerging Markets (EEM) has underperformed WisdomTree Emerging Currency (CEW) by less than 1.5 percent. Bonds have played the larger role in weakness, with EMLC down 10 percent over this period.

Equities opened the week lower after German Chancellor Angela Merkel faced dissent over migration policy. iShares MSCI Germany (EWG) fell 2 percent before recovering slightly during Monday trading. As a major component in international funds, the dip in the German market weighed heavily on foreign shares.

U.S. markets were much stronger. The Russell 2000 Index gained on the day. Other indexes saw small losses. Crude oil prices rebounded, and Utilities saw a small gain as long-term interest rates declined.

The National Association of Home Builders index dipped 2 points to 68 in June, but remains near two-decade highs. Economists were looking for a big increase to 78, but rising lumber costs weighed. For all of 2018 the confidence index has averaged 70. This is the highest average reading of all-time. Tuesday will bring new home starts and building permits for May, followed by existing home sales on Wednesday. The flash PMIs for June will also be out this week.

The U.S. Dollar Index rose this week due to a dip in the Canadian and Australian dollars. The greenback was flat against most emerging-market currencies. It saw a small gain versus the euro. Emerging-market ETFs slid more than 1 percent on the day. Over the past month, both iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM) have underperformed SPDR S&P 500 (SPY) by 5 percentage points. The rising U.S. dollar explains less than 2 percent of that performance gap.

Crude oil held above $65 a barrel on Monday, while natural gas prices were steady. Gold lost nearly $30 an ounce on Friday. It saw a small bounce on Monday.

FedEx (FDX) and Oracle (ORCL) will highlight earnings this week. Analysts expect FedEx will report 34 percent higher earnings versus last year, or $5.71 per share. They see earnings of $0.87 per share at Oracle, 6 percent higher than a year-ago.  Micron Technology (MU) is the other major report. Analysts forecast earnings growth of more than 100 percent as memory prices surged in the past year. FedEx, Oracle and Micron are major holdings in the transportation, software and semiconductor sectors. Kroger (KR), Darden Restaurants (DRI) and Blackberry (BB) will also report this week.

The Nasdaq led the major indexes with a gain of 1.45 percent this week. Consumer discretionary pulled the index higher after a judge approved the AT&T (T) Time Warner (TWX) merger. The decision opened the door to further consolidation in the media and telecom industry. Comcast (CMCSA) immediately announced a $65-billion offer for Fox assets, topping the prior bid from Disney (DIS). Fox may postpone a planned shareholder vote on Disney’s offer.  Netflix (NFLX), the third largest holding in SPDR Consumer Discretionary (XLY), rallied nearly 10 percent to a new all-time high as a result. XLY gained 2.24 percent on the week.

Consumer inflation met expectations and producer inflation growth was faster than expected. Jobless claims fell to 218,000 last week and the number of people on unemployment fell to a 43-year low. Retail sales beat expectations in May, rising 0.8 percent and 0.9 percent ex-autos. The University of Michigan consumer confidence survey for early June increased and the NFIB small business index showed optimism at its highest since 1983. The Atlanta Federal Reserve’s GDP Now model hiked its second-quarter GDP forecast to 4.8 percent.

The Federal Reserve hiked interest rates as expected this week. The accompanying economic and interest rate projections showed a majority of Federal Open Market Committee officials expect two more rate hikes in 2018. The odds of four rate hikes this year climbed above 50 percent in the futures market.

The European Central Bank will end its quantitative easing program at the end of 2018, as expected. However, ECB chief Mario Draghi sent the euro sliding after he said interest rates would remain unchanged until at least the middle of 2019. With European economic data weaker than the U.S., traders and economists are skeptical.

The ECB pushed the U.S. Dollar Index to a new high for 2018 and near a 52-week high. SPDR S&P 500 (SPY) returned 0.07 percent on the week, while iShares MSCI EAFE (EFA) fell 0.57 percent and iShares MSCI Emerging Markets (EEM) slid 2.33 percent. European stocks rallied following the ECB meeting. WisdomTree Europe Hedged Equity (HEDJ) gained 1.80 percent on the week, while iShares EMU Index (EZU) saw a much smaller increase of 0.23 percent.

President Trump announced tariffs on $50 billion worth of Chinese imports on Friday. China responded with $50 billion in tariffs on U.S. goods. Soybeans, a major Chinese import form the U.S., have fallen over the past two weeks in anticipation of the move and hit a 52-week low on Friday. Some industrial shares with exports to China, such as Boeing (BA) and Caterpillar (CAT) underperformed on the day.