The stock market secured its third consecutive weekly advance with the S&P 500 rising 0.8%. The benchmark index posted gains in four of the first six weeks of 2017 while the two down weeks in the middle of January shaved a whopping 0.25% off the index.
The first half of the week featured sideways action just below record highs from late January, but the market snapped out of that range on Thursday after comments from President Donald Trump reminded investors that tax reform remains a priority. Mr. Trump announced that something “phenomenal” on the tax front would be announced in the next two or three weeks. The comments, which did not include specific details, were enough to encourage investors, who were starting to worry that a major campaign promise may go unaddressed.
Market participants received another heavy dose of quarterly reports, but the earnings had more influence on individual stocks than the broader market. At the end of the week, more than 71.0% of S&P 500 components had reported their results, generating blended earnings growth of 4.9%, according to FactSet. This represented a modest shortfall relative to the estimate from the end of September, which called for growth of 5.2%.
The past week was quiet on the economic front, leaving investors with just a few second-tier reports to digest. The preliminary reading of the Michigan Sentiment index for February declined to 95.7 from 98.5, almost entirely due to a pullback in the Expectations Index. That index fell to 85.7 from 90.3 while the Current Economic Conditions Index ticked down to 111.2 from 111.3.
Rate hike expectations barely budged on a week-over-week basis. The fed funds futures market ended the week showing a 67.3% implied probability of a rate hike in June, up from last week’s 63.5%, but down slightly from 69.2% two weeks ago.
- Dow Jones Industrial Average +2.60% YTD
- Nasdaq Composite +6.50% YTD
- S&P 500 +3.50% YTD
- Russell 2000 +2.30% YTD
The benchmarks traded on a very narrow breadth on Thursday and Friday with significantly lower volumes as Algo systems dominated the trade after Trump’s mention of ‘phenomenal’ tax reforms’.
The week ahead is not likely to be affected by earnings as most of the big guns have already run the gauntlet and left a lot of optimism ahead of us. However, the Dollar and Bond Yields are not behaving in a way that is convergent to a risk-on market.
Dollar Rallies but Hesitates After Michigan Sentiment
The U.S. Dollar Index rose 0.20% to 100.85 today as the dollar gained against all of the majors. The greenback rallied up until mid-morning in the U.S. when a weaker-than-expected Michigan Sentiment reading sent Treasury yields lower and the dollar back down. The euro made a one-month low as eurozone core/periphery yield spreads widened again and investors concerned themselves with France’s presidential election in April. Bloomberg says that right-wing Marine Le Pen has a 31% chance of victory, which is probably too high, but her victory could easily lead to French departure from the eurozone. Industrial production in Italy grew at its fastest year-on-year pace since 2011 during December but French industrial production missed forecasts. In the U.K., economic reports continue to show strength and industrial production growth there hit a five-year high in December while the trade deficit narrowed more than expected. The Aussie dollar is near a one-year high as labor unrest pushed copper prices to their highest level since early 2015
January Treasury Budget $51.3 bln vs. $55.2 bln prior
The Treasury Budget for January showed a surplus of $51.3 billion versus a surplus of $55.2 billion for January 2016. The Treasury Budget data is not seasonally adjusted, so the January surplus cannot be compared to the $27.3 billion deficit registered in December.
- Total receipts in January were $344.1 billion while total outlays were $292.8 billion.
- Receipts were $30.5 billion more than receipts in January 2016. Total outlays, meanwhile, were $34.4 billion more than the same period a year ago.
- The 12-month deficit widened to $583.9 billion from $580.0 billion in December.
(Excerpts from Briefing.com)
Bonds saw its curve flatten as longer maturities received a flight-to-safety in spite of the bullish nature of the risk trade.
- 2-yr: 1.20% to 1.20%, unchanged from previous week’s close
- 5-yr: 1.93% to 1.89%, down 4bps
- 10-yr: 2.49% to 2.41%, down 8bps
- 30-yr: 3.11% to 3.02%, down 9bp
Commodities had a flattish week with nary a gain or loss across all the trading complexes.
- WTI crude closed unchanged at $53.80/bbl from $53.81/bbl the previous week
- Feb gold ended higher at $1,235.2/troy oz from $1,218.60/troy oz
- Mar silver closed 44 cents higher at 17.93/oz from $17.49/oz
- Mar copper closed 15 cents higher at $2.77/lb from $2.62/lb
Agriculture Closing Prices
- Mar corn closed at $3.74/bushel, up from last week’s close at $3.64/bushel
- Mar wheat closed at $4.47/bushel, up from last week’s close at $4.30/bushel
- Mar soybeans closed at at $10.58/bushel, up from last week’s close at $10.27/bushel
THE WEEK AHEAD
Monday 13 to Friday 17 February (Week 07)
- February Expiration week tends to be weak after starting strongly
- February Expiration Friday (17th) has been down on NASDAQ 12 of the last 17
- Friday February 17 is also the day before President’s Day (Feb 20) and has been down on the S&P 17 out of the last 25 (Last year up)
The seventh week of 2017 (wk7) is bullish for the SPY (more than 70%) and DIA (60%) over the last 5, 10 and 15 years.
The 2017 Stock Trader’s Almanac’s averages for the DOW are bullish on Monday and Wednesday at around 66% and bearish on Tuesday (53%), Thursday (57%) and Friday (62%). S&P500 is bullish on Monday and Wednesday at around 71% and bearish on Tuesday (53%), Thursday (62%) and Friday (57%).
Key Economic Dates
- Sun 12 Feb
- Japan Prelim GDP q/q
- Tue 14 Feb
- EU Flash GDP q/q, German Prelim GDP q/q, German ZEW Economic Sentiment
- UK CPI y/y, RPI y/y, PPI Input m/m
- US PPI m/m, Core PPI m/m
- Wed 15 Feb
- UK Average Earnings Index 3m/y, Claimant Count Change, Unemployment Rate
- US CPI m/m, Core CPI m/m, Core Retail Sales m/m, Retail Sales m/m, Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production m/m
- Australia Employment Change, Unemployment Rate
- Thu 16 Feb
- EU ECB Monetary Policy Meeting Accounts
- US Housing Starts, Philly Fed Manufacturing Index, Building Permits
- Fri 17 Feb
- UK Retail Sales m/m, Public Sector Net Borrowing
Earnings Calendar for the week of February 13th
- Monday (February 13)
- BMO: TEVA, FDC, QSR, NSP, LNCE, HCP, TSEM, WEX, VSM, NNN, STNG, CSWI, USAC, DCIX
- AMC: BKD, NBL, AMKR, FLO, ACGL, OMF, SCI, RCII, VNO, BRKR, MPSX, DCP, AGII, BRX, DDR, FRT, GPOR, CSOD, RNG, CHGG
- Tuesday (February 14)
- BMO: AUO, TMUS, DISCA, DPS, DBD, WSO, MLM, AB, CAE, ITT, LECO, TOWR, FLIR, CRL, TRU, GNRC, MGI, STFC, INCY, IPGP, VG, AYR, AMAG, ACOR, CPLA, SALE, TTS
- AMC: ESRX, AIG, INT, DVN, OMI, ENLK, FOSL, ASGN, BYD, CCS, IOSP, DIOD, LXFT, PAAS, MASI, FANG, CIM, RPAI, CALX, HOLI, SKT
- Wednesday (February 15)
- BMO: PEP, BG, USFD, TECK, ETR, HLT, HUN, LAD, WYN, ICL, GRPN, ADI, CIGI, DNOW, ALE, MFS, CBB, OZM, ALKS, FUN, SODA, SHOP, PLAB
- AMC: CSCO, SLF, KHC, MAR, MOH, CBS, AMAT, ABX, CAR, WMB, NTES, NTAP, CC, ANDE, MRO, GG, SPWR, EQIX, SRCL, CF, KGC, HAWK, IFF, SNPS, CW, CPA, AEM, GDDY, CVA, NLY
- Thursday (February 16)
- BMO: YNDX, CHTR, DUK, PCG, PBF, SHPG, TRP, WM, CVE, MGM, LH, FTS, DF, HII, AVP, AEE, CAB, SCG, ZTS, CVI, CVRR, H, TIME
- AMC: DVA, ED, RSG, TRN, FLS, CPS, MRC, KEYS, NUS, DLR, MEP, AUY, CRC, AMN, MDRX, NWE, ANET, NAVG, LOPE, WBMD, TMST, UEIC
- Friday (February 17)
- BMO: ENB, FLR, DE, VFC, CPB, SJM, LPNT, SE, BLMN, MCO, AAN, CTB, WBC, SEP, GVA, POR, MTRN, ROCK, ATRO
As earnings season winds down, things look to be getting back to normal and the market looks ready for another leg up. But before it does, it will have to overcome the next two weeks of volatility from expiration Friday this week and a slew of economic data the following week. I closed out my long positions on Friday and will be looking for go short before the middle of the week.