Month: July 2018

FANG stocks pulled the technology and consumer discretionary sectors and the broader market lower on Monday. Facebook (FB) fell 2.19 percent on the day, Amazon (AMZN) 2.06 percent, and Netflix (NFLX) 5.71 percent. Financials, materials, and energy were positive for most of the day, while healthcare and consumer staples held up well. SPDR Technology (XLK) declined 1.53 percent on the day and SPDR Consumer Discretionary (XLY) slid 0.78 percent. SPDR Financials (XLF) rose 0.04 percent.

The Federal Reserve’s policy statement is due out on Wednesday. The odds of a fourth rate hike at the December meeting has hit 70 percent, benefiting the financial sector.

The Bank of Japan will issue its policy statement on Tuesday. For the third time in the past week, the BoJ offered to buy unlimited Japanese government bonds to stabilize interest rates. Long-term yields have risen in anticipation of a BoJ policy shift. Analysts forecast the Bank of England will hike interest rates by 25 basis points.

Pending home sales rose 0.9 percent in June, beating expectations. The Conference Board will release its consumer confidence index for July. Analysts see it rising from June. The PMIs for various nations will also be out this week. The U.S. should remain relatively strong. Markets are likely to focus on Europe and China, two regions that have seen a slowdown in recent months.

Auto sales for July will be out on Wednesday. The consensus is looking for 17.1 million annualized, down from June’s surprisingly high 17.5 million annualized pace. Friday will bring the unemployment report for July. Economists predict 193,000 new jobs were created last month with the unemployment rate falling back to 3.9 percent.

Crude oil climbed above $70 a barrel on Monday. The U.S. Dollar Index weakened against the euro and emerging-market currencies.

Earnings kicked off with a beat by Caterpillar (CAT). Shares gained on the day. There are 144 other S&P 500 companies reporting this week, including Apple (AAPL), Pfizer (PFE) and Proctor & Gamble (PG). Baidu (BIDU), Illumina (ILMN), Simon Property Group (SPG), Tesla (TSLA), T-Mobile US (TMUS), MetLife (MET), Express Scripts (ESRX), Prudential Financial (PRU), DowDuPong (DWDP), EOG Resources (EOG), Aetna (AET), Kraft Heinz (KHC) and Enbridge (ENB) will also report.

The now $20-trillion U.S. economy grew at a 4.1-percent annualized pace in the second quarter, in line with forecasts. Personal consumption rose 4 percent.

Exports were responsible for 1 percentage point, or roughly 25 percent of growth. Economists believe this boost was temporary, caused by foreign importers rushing to buy ahead of tariffs. Third-quarter GDP may be in the 3 percent range if this is the case.

Nominal GDP increased by 7.4 percent, up 3.1 percent from the first quarter, and was largely overlooked by the press, but represents an important data point.  If interest rates remain low and nominal growth remains high, the total U.S. government debt outstanding will fall as a percentage of GDP.

Flash manufacturing PMIs for July showed a steady rate of expansion. Existing home sales hit forecasts at 5.38 million (annualized). New home sales missed estimates at an annualized pace of 631,000, in the mid-range of the expansion trend that started in 2010. Initial claims for unemployment were 217,000.

Earnings season was positive this week but featured high-profile misses. Facebook (FB) and Twitter (TWTR) both fell more than 10 percent after reporting slower user growth. Netflix (NFLX) shares are still down about 10 percent after reporting slowed subscriber growth two weeks ago.

There also was a significant rotation out of growth and into value shares this week. Financials, industrials and energy were the week’s strongest sectors. Airlines extended the transportation sector’s rise. Boeing (BA) and Caterpillar (CAT) both rallied on the week. J.P. Morgan (JPM), Bank of America (BAC) and Citigroup (C) also outperformed. The Dow Jones Industrial Average more than doubled the return of the S&P 500 Index on the week, while the Nasdaq and Russell 2000 both pulled backed from recent highs.

The U.S. dollar rallied this week after the European Central Bank reported rate hikes aren’t likely until after the summer of 2019. The spread between U.S. and German 10-year government bonds approached 30-year highs. Emerging markets outperformed as well. The Chinese government announced a small stimulus plan and measures designed to increase banks’ lending capacity. The news bolstered Chinese stocks but sent the yuan to a new 52-week low.

Strong Alphabet (GOOG) earnings lifted the Nasdaq higher on Tuesday and into the black for the week. The Dow Industrials and Russell 2000 are near short-term resistance levels.

The financial sector has been rising with long-term interest rates. Stronger economic data has been driving rates higher in July, but the first estimate of second-quarter GDP, due on Friday, will make or break the trend. The economist consensus hit 4.3 percent on Wednesday.

Healthcare, technology and consumer staples have led the past week’s sector performance.

Alphabet (GOOG) moved to a new 52-week high over the past two weeks and broke out to upside following earnings. Last week, Microsoft (MSFT) also delivered positive results.

Biotechnology hit a new 52-week high this week after Biogen (BIIB) beat estimates following promising mid-level trials of a new Alzheimer’s drug that sent the stock close to its 52-week high last week. The overall biotechnology sector also hit a new 52-week high. Amgen (AMGN), AbbVie (ABBV) and Gilead Sciences (GILD) will report earnings this week.

Friday will be a big earnings day for the energy sector with Exxon (XOM) and Chevron (CVX) reporting. The energy sector remains in a consolidation phase with oil prices. Although natural gas prices have been falling, the natural gas producer ETF is slowly working its way higher as gas prices become more competitive.

China did not approve Qualcomm’s (QCOM) purchase of NXP Semiconductors (NXPI). Qualcomm (QCOM) will extend the offer or pay a $2 billion breakup fee to NXP. The deal has weighed on both company’s shares since it was announced in November 2016.

Qualcomm is the second-largest holding in iShares PHLX Semiconductor (SOXX) at 8.23 percent of the fund (and only 0.04 percent behind the top holding). VanEck Semiconductor (SMH) has QCOM and NXPI in its top-10. They combine for 9.79 percent of assets.

Gold and the Japanese yen rallied after the Bank of Japan offered to buy unlimited amounts of government bonds. Interest rates had risen after the market anticipated a policy shift at the BoJ and the bank stepped in to push rates back down. A policy shift is unlikely until at least October.

The stronger yen pushed the U.S. dollar lower this week.

The Global Auto ETF (CARZ) fell on Wednesday after General Motors (GM) reported earnings.