Weekly Market Update – 17 July 2017 BMO

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S&P 500, Dow Advance to New All-Time Highs

The stock market closed the week on a positive note with the S&P 500 (+0.5%) and the Dow (+0.4%) both advancing to new record highs. Meanwhile, the Nasdaq climbed 0.6% and finished just nine points below its record close. For the week, the S&P 500 moved higher by 1.4%, which marks its best weekly performance since the end of May.

The stock market got off to a slow start this week, but Fed Chair Janet Yellen’s semiannual testimony before Congress sparked a rally in the midweek session that lingered all the way into Friday’s closing bell. In the end, the S&P 500 registered its largest weekly gain since the end of May and settled Friday’s session at a new record close. For the week, the S&P 500 advanced 1.4%.

For the most part, the first two sessions of the week were uneventful. The stock market did make a sharp move lower on Tuesday after Donald Trump Jr. tweeted an email exchange that involved him setting up a meeting with a Russian lawyer in an attempt to gain some possibly incriminating information on then-presidential candidate Hillary Clinton. However, the bearish sentiment didn’t last and the S&P 500 entered Wednesday’s session flat for the week.

Equities rallied in the midweek session after Fed Chair Janet Yellen’s semiannual monetary policy testimony came off less hawkish than many were anticipating. One of the key takeaways from Ms. Yellen’s prepared remarks was her acknowledgment that “the federal funds rate would not have to rise all that much further to get to a neutral policy stance.” The statement created a sense that the Fed may in fact follow a shorter path of rate hikes that will keep the longer-run neutral level of the federal funds rate below levels that prevailed in previous decades.

The S&P 500 leaned on its most influential sectors, namely technology and financials, to capture its third win of the week on Thursday. The financial sector’s positive performance was particularly notable as the group plays an important role in driving economic activity and had failed to keep pace with the broader market in the three prior sessions. Financials remained a focal point once again on Friday with JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) headlining the earnings front.

All three of the aforementioned banks reported better than expected earnings–with JPM and C also beating revenue estimates–but the results were just not enough, at least in the market’s mind, to justify the bullish six-week run that JPM, WFC, and C rode into Friday’s session. The financial sector settled in the red, losing 0.5%, but the S&P 500 managed to advance to a new all-time high thanks to gains from ten of its eleven sectors.

In addition to earnings, economic data was also a focal point on Friday as below-consensus retail sales and core CPI readings for the month of June prompted a rally in the Treasury market; the benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, dropped three basis points to 2.32%, ending the week with a seven-basis point loss.

Like Treasury yields, rate-hike expectations were also dialed back a bit this week. However, the fed funds futures market still points to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 50.6%. This time last week, the implied probability of a December rate hike sat at 59.1%.

(Excerpts from Briefing.com)

Reviewing Friday’s big batch of economic data, which included June CPI, June Retail Sales, the June Industrial Production and Capacity Utilization Report, May Business Inventories, and the preliminary reading of the University of Michigan Consumer Sentiment Index for July:

Currencies: Dollar Index nears Bear-Market Territory on Weak Data

Bonds yields: Yield curve falls after two weeks of gains with the belly of the curve taking the biggest loss.

Commodities: Crude, Metals rise 

Agriculture: Grains fall after two weeks of gains.

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Week29THE WEEK AHEAD

Expect an uneventful week ahead as Q2 Earnings Season goes into its second week.

Monday 17 July to Friday 21 July (Week 29)

The twenty-ninth week of 2017 (wk29) is flat-to-bullish for the DIA and the SPY over all the 5, 10 and 15 year averages with less than 60% average reliability.

Our weekly models over 5, 10 and 15 year averages show the DIA as mildly bearish throughout the week with a very bullish TuesdaySPY is expected to be unpredictable throughout the week with a unreliable statistics.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 29;

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Earnings Calendar for the week of July 17th

Mon 17 July

Tue 18 July

Wed 19 July

Thu 20 July

Fri 21 July

Key Economic Dates

Sun 16 July

Mon 17 July

Tue 18 July

Wed 19 July

Thu 20 July

Fri 21 July

SUMMARY

Apparently, Singapore barely avoided a recession by reporting a 0.4% expansion in growth for the the second quarter of 2017 over the previous quarter. The number was most derived from “robust growth in its electronics and precision engineering industries due to strong global demand for semiconductors and semiconductor manufacturing equipment.”

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I find that hard to swallow because every time our growth is expected to make consecutive negative contractions, some vague white knight manages to help the number to barely scrape by or form some anomaly that’s obviously unsustainable. Although manufacturing has been a consistent contributor to the growth number for the last 10 months, the sector has not played a huge part in the island state’s growth story for the past two decades as compared to services, import/export and various other infrastructure based businesses. It seems convenient that it now plays a huge part in the country’s growth.

You can delay the inevitable but the street already knows what the numbers don’t say – jobs are getting tighter, salaries are getting squeezed, spending is stagnant if not falling and property prices have been falling for 15 quarters.

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The bright side is that analysts are optimistic that this will spur growth in the services sector. With the next Monetary Policy Meeting due in October, analysts are confident that the central bank (MAS) will hold policy steady.

Happy Hunting!

REMINDER:

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The Pattern Trader™ Tutorial will be having its second Preview for the August Batch on 27 July. Don’t miss out on this educational three-hour session by registering here: July 27, 2017 Preview Session

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