Market Perspective for November 18, 2016
Financial and technology sectors brought major averages near all-time highs this week as post-election optimism continued. The SPDR Financial Select Sector ETF (XLF) gained more than 2 percent, while shares of the SPDR Technology Select Sector ETF (XLK) were up slightly more than 1 percent. Gold prices dropped close to 3.5 percent on the week as the dollar index rose. The SPDR Standard & Poor’s 500 index ETF (SPY) was higher by more than 1 percent.
During her congressional testimony Thursday, Federal Reserve Chair Janet Yellen stated that a near-term rate increase would be appropriate and that waiting too long would have negative effects. She also indicated that any increases would come at a gradual pace. The Federal Open Market Committee (FOMC) is scheduled to meet in mid-December. Odds of a rate hike at the meeting have reached an almost certain 91 percent.
October’s 0.8-percent retail sales beat consensus forecasts and, for the first time in four months, the New York Fed Empire State Manufacturing Survey reached positive territory. Economists had expected a slight uptick, but new orders and shipments were much stronger than anticipated. European third quarter gross domestic product (GDP) grew in-line with the expected 1.3-percent year-over-year increase.
On Wednesday, the weekly mortgage purchase application index unexpectedly slipped 1.2 percent as mortgage rates continued to rise. The Industrial Production and Capacity Utilization figures for October signaled flat production and utilization that was lower than forecast. The weekly oil inventory report indicated another large build. The price of oil rallied early in the week on reports of an OPEC meeting in Doha before giving back some of those gains when it was revealed that several key oil exporters would skip the conference. The price for barrel of West Texas Intermediate crude rose almost 8 percent on the week. Shares of the Energy Select Sector SPDR ETF (XLE) were up more than 2.5 percent.
The domestic producer price index (PPI) and consumer price index (CPI) figures were released Wednesday and Thursday. Unchanged for October, the PPI missed expectations of a modest 0.3 percent increase. The CPI figures experienced their biggest uptick in six months primarily due to increasing gasoline prices and rent payments. The pickup in inflation is another indication that the Fed will raise interest rates in December. Despite the increase in mortgage rates, housing starts jumped 25 percent last month. Once again, weekly unemployment claims fell to a fresh multi-decade low at 235,000, below the expected 257,000.
Shares of Cisco Systems (CSCO) fell approximately 6 percent when the tech giant beat consensus estimates, but lowered forward guidance on Wednesday. Salesforce.com (CRM) shares rose more than 5 percent after Thursday’s closing bell following a 2 percent increase in quarterly revenues. Shares of Home Depot (HD) were flat despite an earnings beat and improved forward guidance, while Lowe’s (LOW) shares initially dropped before recovering after missing earnings and revenue forecasts.
Target (TGT) shares rose 7 percent as sales and earnings beat estimates. Wal-Mart (WMT) shares shed almost 3 percent. Although WMT beat analysts’ earnings forecasts, investors were wary of the company’s forward guidance. Shares of Best Buy (BBY) rose 15 percent when the company handily beat forecasts and reported stronger-than-expected same-store sales.