Weekly Market Update – 27 February 2017 BMO

DOW5days

The major indices extended their run with the DOW clocking a third straight week of gains and the S&P500 going five weeks up.

The stock market appeared to be in jeopardy of recording its first down week in a month, but a recovery on Friday afternoon helped the S&P 500 add 0.7% for the week, extending its first quarter gain to 5.7%.

Equity indices motored higher to start the week, but investor sentiment soured a bit on Thursday, after Axios reported that Republican lawmakers are likely to delay a decision on infrastructure spending until 2018, giving Congress time to focus on tax and health care reform in 2017. The news weighed on construction and engineering names with Caterpillar (CAT) falling 3.3% during the final two sessions of the week.

However, the overall stock market took the news in stride, which was impressive, considering pro-growth policies were cited for the post-election charge that lifted the S&P 500 to a fresh record. The market did see some selling on Friday morning, but dip buyers helped the benchmark index turn positive by the close.

The past week was very quiet on the economic front, but investors did receive the most recent policy minutes from the Federal Open Market Committee. The minutes acknowledged that a rate hike will be in order fairly soon, if incoming data on jobs and inflation remains in line with expectations.

It is worth noting that some members of the FOMC expressed concern that low volatility in equity markets is inconsistent with considerable uncertainty attached to the outlook for changes to the fiscal landscape. The CBOE Volatility Index (VIX) held its ground in the 11.50% area, ending the week well below its 200-day moving average (13.80).

Rate hike expectations saw limited movement during the past week. The implied likelihood of a hike in May ticked up to 50.4% from last week’s 44.1% while the implied probability of a rate hike in June slipped to 66.5% from last Friday’s 69.9%.

The Dollar Index tested the 101 level for resistance. The greenback was trending lower Friday but saw some buyers jump in right ahead of the open. But that rally has fizzled out at 101. We will be getting a steady flow of data next week which will help set up the March meeting expectations. The biggest headwind at the moment appears to be the dollar and the low yields in Europe as the Fed is worried about the divergence. Of note, the jobs report is not out until March 10. This is due to how the timing of the three week period at the BLS plays out.

(Excerpts from Briefing.com)

Bonds yields retreated with the belly of the curve falling by double figures in the week to flatten the curve rather drastically in spite of the gains in risk.

Commodities closed mostly higher except for copper that was divergent for the most part.

Agriculture Closing Prices

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THE WEEK AHEAD

Monday 27 to Friday 03 March (Week 09)

The eighth week of 2017 (wk9) is bullish for the SPY and DIA over the last 5 years with more than 80% reliability on SPY. However, the stats over the last 10 and 15 years are bearish with less than 50% reliability.

The 2017 Stock Trader’s Almanac’s averages for the DOW are bearish on Monday (52%) and Tuesday (57%) and Thursday (57%) while Wednesday (61.9%) and Friday (57.1%) are bullish. S&P500 is bullish on Monday (52.4%), Wednesday at (61.9%) and Friday (66.7%) and bearish on Tuesday (57%) and Thursday (62%).

Key Economic Dates

Mon 27 Feb

Tue 28 Feb

Wed 01 Mar

Thu 02 Mar

Fri 03 Mar

Some notable earnings this week …

SUMMARY

The week ahead looks like its going to be another frustrating roller-coaster without huge gyrations. Boring.

Happy Hunting.

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