Weekly Market Update – 16 January 2017

The market finished the week in unimpressive style given that it was the eve of a three-day weekend ahead of Martin Luther King Jr Day on Monday 16 January. The S&P 500 took a breather during the past week, logging a modest downtick of 0.1%, while the Nasdaq Composite added 1.0% thanks to relative strength in the technology sector.

The benchmark index spent the week inside a 25-point range as participants awaited the start of the fourth-quarter earnings season. On Friday, Bank of America (BAC), JPMorgan Chase(JPM), and Wells Fargo (WFC) got things going with a set of mixed results. Bank of America and JPMorgan Chase topped bottom-line expectations while Wells Fargo reported below-consensus results. The three names surged at the start of Friday’s session, but saw intraday profit taking. It is worth remembering that the financial sector enjoyed a huge post-election run, soaring more than 15.0% in just one month. During the past week, the sector shed 0.1%.

Investors received a small batch of economic reports last week with the most noteworthy pair crossing the wires on Friday. December PPI (+0.3%; consensus +0.3%) and core PPI (+0.2%; consensus +0.1%) were close to expectations while December Retail Sales (+0.6%; consensus +0.7%) and Retail Sales ex-auto (+0.2%; Briefing.com consensus +0.6%) disappointed. Recall that two weeks ago, several apparel retailers made cautious comments about their expectations for fourth-quarter earnings. The consumer discretionary sector added 0.8% for the week, extending its January gain to 3.2%.

Rate hike expectations barely budged during the past week. The implied probability of a hike in June ticked up to 69.7% from last Friday’s 69.0%, according to the fed funds futures market. (Parts taken from Briefing.com)

The World Economic Forum begins on Tuesday and has a track record of moving the financial markets in the past. But the highlight of the week (may not move markets) is Friday’s Inauguration Day when Donald Trump takes the Presidential Oath of Office at Noon Eastern.

Bonds

The bond yield curve fell from the 6 Jan close with the belly of the curve selling falling more than the 2 and 30 year maturities.

For the week (Monday to Friday), yields actually steepened the curve as Monday’s session closed with longer maturity yields falling more than the 2 and 5 years yields to flatten the curve at the start of the week.

(From 6 Jan 17 to 13 Jan 17)

Commodities mostly had a good week with Precious and Base Metals gaining while Energy prices finished weaker for the week.

Agriculture Closing Prices

THE WEEK AHEAD

Tuesday 17 to Friday 20 January (Week 03)

The third week of January (wk3) is bearish for the SPY and DIA over the last 10 and 15 years with the DOW carrying an average of 50% reliability and the SPY at than 50%. Over the last five years, however, both benchmarks have been bullish at 80%.

The 2017 Stock Trader’s Almanac’s averages for the DOW on Tuesday and Wednesday have a slightly bullish bias at 57% averagely. Thursday is bearish for DOW at 57% and bullish on  S&P500 at 52%. Friday is bearish for both DOW and S&P500 at an average 65%.

Key Economic Dates

Tue 17 Jan
• WEF (World Economic Forum) Annual Meetings
• UK CPI, PPI, RPI
• EU German ZEW Economic Sentiment
• US Empire State Manufacturing Index

Wed 18 Jan
• WEF Annual Meetings
• UK Unemployment Change, Average Earnings
• EU Final CPI y/y
• US CPI, Capacity Utilisation, Industrial Production
• Australia Employment Change, Unemployment Rate

Thu 19 Jan
• WEF Annual Meetings
• EU ECB Press Conference
• US Building Permits, Philly Fed Manufacturing Index, Housing Starts

Fri 20 Jan
• WEF Annual Meetings
• UK Retail Sales
• Inauguration Day: Donald Trump to take the Presidential Oath of Office at Noon Eastern

Earnings out next week for Q4 earnings

SUMMARY

A tale of three very different indices from the same economy. I have not seen such drastic divergences on the benchmarks since 2008. There’s no way to know what it all means but it is telling us that not all is well or proper in the market these days.

I have been on the sidelines for the most part as the last three years’ January months have given me reason to doubt January’s sentiment anymore. Apart from oil scalps, I am likely to not trade anything till I get really reliable statistics and low risk opportunities. For now, this equity market scares me.

Happy Hunting!! … if you can find anything to hunt.

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