Weekly Market Update – 06 March 2017 BMO

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The stock market continued its relentless push higher, which resulted in the sixth consecutive weekly advance for the S&P 500 and the Dow Jones Industrial Average cruising past 21,000. The benchmark index gained 0.7% for the week, extending its first quarter advance to 6.4%. The Nasdaq underperformed during the week (+0.4%), but remains ahead so far in 2017 (+9.1%).

The first two days of the week were highlighted by sideways action as most participants sat on their hands ahead of President Donald Trump’s first address to Congress, which took place on Tuesday evening. There was some profit taking ahead of the evening address on Tuesday, but not only was the selling limited, it took place after a strong run in February that ended with the S&P 500 gaining 3.7% for the month.

Tuesday’s modest downtick was wiped out in short order as equity indices charged out of the gate on Wednesday, jumping to new record highs. The upbeat disposition was attributed to President Donald Trump’s address, which was free of surprises and deemed ‘presidential’ by pundits. President Trump reiterated his commitment to a $1 trillion infrastructure plan and made another mention of a big tax reform plan on the horizon. Details, however, remain to be seen.

However, it wasn’t all President Trump as investors received some positive news from the global economic front on Thursday. China’s Manufacturing PMI for February (51.6; expected 51.1) beat expectations while eurozone Manufacturing PMI (55.4; expected 55.5) ticked down slightly, but remained in expansion.

On the domestic data front, fourth quarter GDP was left unrevised at 1.9% in the second estimate, while more recent data like February Chicago PMI (57.4; Briefing.com consensus 53.0), February Consumer Confidence (114.8; Briefing.com consensus 111.5), and February ISM Index (57.7%; Briefing.com consensus 56.1%) beat expectations. That combination, and some hawkish comments from Fed officials, contributed to a notable shift in rate hike expectations.

The fed funds futures market ended the week showing a 79.9% implied probability of a rate hike in March, indicating a prevailing belief that the Federal Reserve is likely to raise the target range for the fed funds rate at its March 14-15 FOMC meeting. Fed Chair Yellen herself contributed to those increased expectations with a speech on Friday in which she indicated a further adjustment in the fed funds rate would likely be appropriate at the March meeting if the FOMC’s evaluation of matters concludes that employment and inflation are continuing to evolve in line with its expectations.

This week also featured the widely-hyped, and closely-followed, IPO of social media company Snap (SNAP) on Thursday. The IPO priced at $17, yet the stock snapped higher when it first opened for trading, hitting the $24.00 mark before closing the session at $24.48 and finishing the week at $27.08.

The major averages finished Friday’s session near their unchanged marks as investors digested the latest remarks from Fed Chair Janet Yellen. The Nasdaq (+0.2%) outperformed while the S&P 500 (+0.1%) finished with a slim gain. The Dow closed the day unchanged.

(Excerpts from Briefing.com)

The U.S. Dollar Index went down 0.79% to 101.34 today (but still 0.08 higher for the week) as FX traders “sell the fact” on Fed Chair Yellen’s indication that a March 15 rate hike is all but assured. The British pound, loonie, Aussie, and kiwi remain near one-month lows but the euro has held up admirably in the face of all of this week’s Fed hawkishness. The international economic data showed continued strength in the eurozone’s service sector but the U.K.’s disappointed. China and Russia also saw slower growth in their service sectors. Retail sales in the eurozone unexpectedly declined in January. Historically, the dollar has not performed well in the wake of Fed rate hikes as Treasury yields have tended to move lower. That is not a forecast but simply a word of caution

Bonds yields rose across the board for the week to match the volatile greed in the risk space as investors saw reasons to get out of safety.

Commodities were again divergent for the most part. In a reverse of the previous week, this week saw weakness in energy and precious while there was strength in copper.

Agriculture Closing Prices

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THE WEEK AHEAD

Screen Shot 2017-03-05 at 8.47.10 PMMonday 06 to Friday 10 March (Week 10)

The tenth week of 2017 (wk10) is flat for the SPY and DIA over the last 5 years but bullish over the last 10 and 15 years with an average 60% reliability.

The 2017 Stock Trader’s Almanac’s averages for the DOW are bearish on Monday (53%) and bullish for the rest of the week; Tuesday (62%), Wednesday (52%), Thursday (57%)  and Friday (62%)S&P500 is bullish all week Monday (52%), Tuesday (62%), Wednesday (57%), Thursday (52%) and Friday (52%).

Key Economic Dates

Mon 06 Mar

Tue 07 Mar

Wed 08 Mar

Thu 09 Mar

Fri 10 Mar

SUMMARY

With the DOW barely clinging on to 21,000, the coming week should see it struggle to hold above it as the week is historically uneventful and boring. I reckon the last five years’ bearish returns will hold true as the market takes a breather. Not surprising if it does as the week, void of other economic data, waits for the employment numbers on Wednesday and at the end of the week.

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