Weekly Market Update – 15 May 2017 BMO

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After posting gains for four weeks in a row, the S&P 500 suffered a slight setback this week, ticking lower by 0.4%. However, the Nasdaq enjoyed a small victory, adding 0.3%, as it continued to ride the relative strength of Apple (AAPL), Amazon.com (AMZN), and a gaggle of semiconductor issues led by NVIDIA (NVDA).

The S&P 500 was flat through the first three sessions of the week with a slim loss on Tuesday wiping out small victories on Monday and Wednesday. The range-bound performances followed Sunday’s French presidential election in which centrist candidate Emmanuel Macron handily defeated far-right candidate Marine Le Pen, as expected. Mr. Macron’s victory was seen as a positive for global equity markets as it takes the possibility of France leaving the European Union off the table for the foreseeable future.

With a key risk event averted, the CBOE Volatility Index (VIX) retreated to a historically-low level. The VIX, also known as the “investor fear gauge”, settled Monday at its lowest mark since December 1993 and finished Tuesday and Wednesday below 10.00. Prior to this week, the VIX had only settled below the 10.00 mark nine times.

Crude oil became a focal point on Wednesday after the Energy Information Administration reported the largest weekly decline in U.S. crude stocks so far this year. The bullish reading prompted a two-day rally for the commodity, and the energy sector, which ultimately left WTI crude with a weekly gain of 3.5%.

Also of note, President Trump unexpectedly fired FBI Director James Comey on Wednesday. That move triggered a tidal wave of political opinions and raised some concerns about the path of progress for the Trump Administration’s pro-growth plans that stymied the stock market. Overall, though, it did not cause any major selling in the stock market.

Retailers captured investors’ attention on Thursday when Macy’s (M) plunged 17.0% in reaction to its disappointing earnings report. Kohl’s (KSS), Nordstrom (JWN), and J.C. Penney (JCP) also slipped after delivering their quarterly results, leaving the SPDR S&P Retail ETF (XRT) lower by 2.9% for the week. Disappointing Retail Sales for April (+0.4% actual vs +0.6% Briefing.com consensus) didn’t help matters, but some of the sting of that headline was taken out by an upward revision for March to 0.1% from -0.3%.

April CPI came in roughly as expected on Friday with total CPI rising 0.2% (consensus 0.2%) and core CPI, which excludes food and energy, adding 0.1% (consensus 0.2%). On a year-over-year basis, total CPI is up 2.2% and core CPI has increased 1.9%. Following the data, Chicago Fed President Evans said that he expects one or two additional rate hikes this year with the actual number depending on the level of inflation.

The fed funds futures market still points to the June FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 78.5%, down from last week’s 83.1%. In the Treasury market, increased buying interest in the second half of the of week left the benchmark 10-yr yield at 2.33%, which is two basis points below last Friday’s closing level.

The S&P 500 posted modest losses on Thursday and Friday, which is what ultimately tipped the week in the bears’ favor.

On the data front, investors received March Business Inventories and the preliminary reading of the University of Michigan Consumer Sentiment Survey for May in addition to the April CPI and Retail Sales reports:

(Excerpts from Briefing.com)

Bonds yields: Shorter maturities’ yields fall to steepen the curve.

Commodities; WTI Crude closes the week with small gain, ending just below $48/bbl.

Agriculture: Mostly lower for the week.

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Screen Shot 2017-05-14 at 7.43.56 PMTHE WEEK AHEAD

Monday 15 to Friday 19 May (Week 20)

The twentieth week of 2017 (wk20) is bearish for the DIA and SPY with 80% over the 5 year average and more than 70% over the 10 and 15 year averages.

The 2017 Stock Trader’s Almanac’s averages for the week;

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Key Economic Dates

Sun 14 May

Mon 15 May

Tue 16 May

Wed 17 May

Thu 18 May

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SUMMARY

With Friday closing in the red, this sets up yet another possibility of another DFDM, which will make it 2 of the last 3 weeks and 7 out of the last 11 weeks – the most congested series of DFDMs since the Dot.com era. Looking at how the futures fell off a cliff this Monday afternoon leads me to believe that this is a very likely scenario.

DFDM15May

This morning, Monday 15 May, Crude oil futures jumped to a two-week high after Saudi Arabian and Russian energy ministers in a joint statement said they back a nine-month extension to the current production cuts led by the Organization of the Petroleum Exporting Countries. That would keep current output caps in place through the first quarter of 2018 if agreed to by all parties at the coming May 25 OPEC meeting.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM7, +2.53%  rallied 91 cents, or 1.9%, to $48.75, trading at its highest level since May 1. July Brent on London’s ICE Futures exchange LCON7, +2.46%  gained 90 cents, or 1.8% at $51.75. Before the announcement, oil prices were essentially flat.

That should set up an interesting week in the oil market this week.

Happy Hunting!!

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