Market Perspective for February 23, 2018

The Nasdaq rose 1.35 percent over the week’s four trading days. The Dow Jones Industrial Average gained 0.36 percent, the S&P 500 Index 0.55 percent, and Russell 2000 0.37 percent, with the week’s most significant activity occurring in the last two hours of Friday trading.

SPDR Technology (XLK) and Consumer Discretionary (XLY) gained 1.52 and 1.05 percent on the week. Financials and industrials rose 0.5 percent. SPDR Utilities (XLU) climbed 0.46 percent as interest rates eased at the end of the week.

Qualcomm (QCOM) boosted its offer for NXP Semiconductors (NXPI) in an effort to fend off Broadcom’s (AVGO) hostile offer for Qualcomm. Broadcom lowered its bid for Qualcomm in response, from $82 to $79. iShares PHLX Semiconductor (SOXX) rallied 2.47 percent on the week.

Walmart (WMT) was the notable earnings miss this week. Slower-than-expected online growth and slightly lower guidance sent shares to their largest one-day loss in nearly 30 years. As a top-10 component in the consumer staples sector, Wal-Mart’s miss thumped related funds such as SPDR Consumer Staples (XLP), which fell 2.23 percent on the week.

The flash manufacturing and service PMIs for February showed a modest uptick in economic activity. The final number will be out next week. Existing home sales slowed to an annualized pace of 5.38 million in January, down 4.8 percent from a year ago. Prices increased 5.8 percent from a year earlier as inventory fell to 3.4 months. Jobless claims fell to 222,000 last week.

The Federal Reserve released the minutes of its January FOMC meeting. Investors interpreted the minutes as slightly hawkish, bumping up the odds of rate hikes at the March, June and December meetings. The minutes pushed the 10-year bond to a new multi-year high of 2.95 percent. The 30-year Treasury climbed above 3.2 percent. Both eased later in the week.

Most bond funds lost ground with rates rising. PowerShares Senior Loan Portfolio (BKLN) gained 0.20 percent as floating-rate funds took rising rates in stride.

The U.S. Dollar Index rallied 0.9 percent this week. In addition to the hawkish Fed minutes, the minutes from the European Central Bank’s last meeting showed concern about a currency war with the United States. Since the United States is not competitively devaluing the dollar, traders sold the euro, taking it as a sign the ECB is worried about euro strength.

The rising dollar weighed on international funds. SPDR S&P 500 (SPY) gained 0.60 percent, but iShares MSCI EAFE (EFA) fell 0.06 percent. iShares MSCI Emerging Markets (EEM) advanced 0.34 percent.

Crude oil climbed back above $63 a barrel this week after a larger-than-expected inventory draw. Analysts expected crude inventory would rise 1.8 million barrels, but instead it fell 1.6 million as exports increased.

Hewlett Packard (HPQ), Hewlett Packard Enterprise (HPE), Intuit (INTU), Advance Auto Parts (AAP), Southern Company (SO), and Medtronic (MDT) beat earnings this week. The S&P 500 Index has a blended earnings growth rate of 14.8 percent with only 10 percent of the index left to report.

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