Market Perspective for November 2, 2018

Financials, consumer discretionary and materials steered equities higher this week. The Russell 2000 Index and Dow Transports led with gains of 4.32 and 4.02 percent, respectively. SPDR Financial (XLF), Consumer Discretionary (XLY) and Materials (XLB) rallied 4.47, 4.43 and 6.06 percent. SPDR Industrial (XLI) advanced 2.66 percent and SPDR Healthcare (XLV) 2.14 percent. Apple’s post-earnings dip weighed on SPDR Technology (XLK), holding it to an increase of only 0.95 percent for the week. Utilities was the only S&P 500 sector that lost ground.

Many beaten down indexes rebounded strongly. iShares PHLX Semiconductor (SOXX) advanced 7.57 percent, SPDR S&P Biotech (XBI) 4.45 percent, and SPDR S&P Regional Bank (KRE) 5.34 percent.

Strong economic data boosted stocks this week. Consumer confidence hit a new 18-year high. Weekly jobless claims held low at 214,000. PMIs continued to reflect expansion in the manufacturing sector. Motor vehicle sales climbed to an annualized pace of 17.6 million, beating both expectations and September’s pace.

The November employment report smashed expectations with 250,000 new jobs. The analyst consensus was 208,000. Hourly earnings rose 0.2 percent in October, double expectations. Wages have increased 3.1 percent in the past 12 months.

Strong employment numbers and rising wages, along with the rally in stocks, boosted the 10-year treasury yield to 3.20 percent on Friday. Rising yields weighed on utilities and real estate. Utilities also slipped as traders who bought amid the correction rotated into oversold sectors such as semiconductors.

The U.S. Dollar Index was flat on the week, while the greenback lost some ground versus emerging- market currencies. iShares MSCI Emerging Markets (EEM) rallied 5.57 percent as the oversold asset class recovered. iShares China Large Cap (FXI) climbed 5.31 percent. iShares MSCI EAFE (EFA) advanced 3.13 percent. SPDR S&P 500 (SPY) rebounded 2.44 percent.

Crude oil fell five consecutive days this week, closing at $63.14. It was the lowest close since April. Natural gas gained on the week to close at $3.28 per mmBTU.

General Electric (GE) slipped 17.70 percent this week after it cut its dividend to 1 cent from 12 cents. The move will conserve $3.9 billion in cash as the company restructures its business.

Earnings season has been very strong thus far and this week was no exception. However, while the S&P 500’s blended earnings growth rate rose to 24.9 percent, it was another high-profile shift in guidance that caught investors’ attention. Apple (AAPL) delivered $2.91 per share in earnings, well ahead of the $2.78 consensus estimates. Apple’s revenue guidance for the current quarter estimates $91 billion, below the estimated $92.9 billion. Shares slipped 6.63 percent on Friday following the release. That slide was responsible for about two-thirds of the decline in SPDR Technology (XLK) on Friday.

 

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