Market Perspective for September 1, 2017

Equities rallied this week, led by the Nasdaq’s 2.71 percent gain. Biotechnology shares rallied sharply after Gilead Sciences (GILD) announced the cash buyout of Kite Pharma (KITE). The FDA also approved a promising new Novartis drug for cancer. iShares Nasdaq Biotechnology (IBB) advanced 8.01 percent on the week.

The Conference Board’s consumer confidence index climbed to 122.9 in August, beating expectations of 122.5. Gross domestic product grew at 3.0 percent in the second quarter according to the Bureau of Economic Analysis. The BEA initially estimated 2.6 percent growth. Economists expected a revision to 2.8 percent. Higher consumer spending and fixed-asset investment lifted growth. The third and final estimate is due at the end of September.

Employment growth was slower than expected at 156,000 new jobs in August, but the market took the number in stride. The unemployment rate ticked up 0.1 percent to 4.4 percent. The ADP employment report was stronger, reflecting 237,000 private-sector workers were hired in August.

Manufacturing PMIs came out on Friday. The ISM manufacturing index hit 58.8, up from 56.3 in July and beating estimates. China’s PMI rose to 51.7, the Eurozone’s to 57.4. Industrial commodities and construction materials rallied on growing damage estimates in the wake of Hurricane Harvey. PowerShares Dynamic Building & Construction (PKB) advanced 4.34 percent and PowerShares DB Base Metals (DBB) climbed 3.22 percent.

Hurricane Harvey also sent gasoline prices sharply higher. About 4 million barrels per day of refining capacity is offline. Most will restart quickly, but some could be offline for months. U.S. Gasoline (UGA) gained 12.82 percent on the week. The decline in refining demand will result in lower crude oil demand. West Texas Intermediate crude fell 1.13 percent.

North Korea fired an intermediate-range missile over Japan early in the week, reigniting tensions with Washington. iShares US Aerospace & Defense (ITA) advanced 2.11 percent on the week. The U.S. Dollar Index gained 0.17 percent for the week.

Earnings were light this week. Campbell Soup (CPB) disappointed investors and shares fell more than 10 percent. Consumer staples shrugged off the miss. Shares of SPDR Consumer Staples (XLP) gained 0.55 percent.

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