Weekly Market Update – 07 August 2017 BMO

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DOW JONES DOMINATES, RUSSELLS TAKE A HIT

According to the Dow Jones Industrial Average, the stock market had yet another bullish week; the industrial average ended Friday at a record high, for the eighth session in a row, and a weekly gain of 1.2%. However, the S&P 500 and the Nasdaq tell a less conclusive story; the S&P 500 muscled its way to a modest victory, adding 0.2%, while the Nasdaq dropped 0.4%.

Regardless of this week’s mixed performance, there’s no question that investors are still bullish as stocks hover near all-time highs and the CBOE Volatility Index (VIX) hovers near an all-time low.

The major averages eked out another win on Friday following the release of the Employment Situation Report for July, which showed an impressive increase in nonfarm payrolls. The Dow (+0.3%) cruised to its eighth-consecutive record close, finishing a tick above both the S&P 500 (+0.2%) and the Nasdaq (+0.2%). For the week, the S&P 500 advanced 0.2%.

The week’s most notable headlines in chronological order:

Of those headlines, two are worth a closer look–Apple’s earnings report and the Employment Situation Report for July. Apple is the S&P 500’s largest component by market cap and has played a huge role in the stock market’s 2017 advance, evidenced by the massive 29.6% year-to-date gain it took into Tuesday night’s earnings release.

Needless to say, it’s quite impressive that the company was able to deliver in the face of such lofty expectations. However, it’s also important to note that much of the positive sentiment surrounding the company has to do with its upcoming iPhone 8 release, which has been generating hype for months. So far, everything looks to be on track for the fall release, but if that changes, so might the bullish bias.

As for the July jobs report, the key take away is it hit the sweet spot once again as job growth was strong but wage growth was not, keeping inflationary concerns at bay. The fed funds futures market points to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 50.4%. Last week, the market expected the next hike to occur in January.

Four sectors settled the week in the green–financials (+1.8%), utilities (+1.5%), industrials (+0.8%), and technology (+0.4%)–while seven groups finished in the red–energy (-1.0%), materials (-0.8%), health care (-0.6%), consumer staples (-0.6%), consumer discretionary (-0.4%), real estate (-0.2%), and telecom services (-0.1%).

Outside of the equity market, the benchmark 10-yr yield slipped three basis points to 2.26%, crude oil dropped 0.5% to $49.44/bbl, and the U.S. Dollar Index climbed 0.3% to 93.35.

(Excerpts from Briefing.com)

Currencies: Dollar Index Snaps Three-Week Skid

Bonds yields: The yield curve flattened for the week with the longer maturities’ yields falling faster then the shorter maturities.

Commodities: Crude, Metals slide back down after consecutive weeks of gains. Baker Hughes total U.S. rig count decreased by 4 to 954 following last week’s increase of 8.

Agriculture: Grains closed lower for the second week.

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THE WEEK AHEAD

More volatility ahead as earnings season peaks out this week with some of the big industrials and tech names on earnings call.

Monday 07 to Friday 11 August (Week 32)

The thirty-second week of 2017 (wk32) has a bearish history. However, I can’t verify the statistics as our model is undergoing some trouble shooting at this time. Apologies for the breakdown in service.

The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 32;

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Key Economic Dates

Mon 07 Aug

Tue 08 Aug

Wed 09 Aug

Thu 10 Aug

Fri 11 Aug

Sun 13  Aug

SUMMARY

What started out as a promising earnings season is now faltering and starting to give investors some serious doubt. The most obvious analysis amongst the pros is that the industrials and transports are divergent again with the transports hinting (as a reliable leading indicator) of some major downside in the making.

INDvTRAN

The past week has also revealed weakness amongst the small and mid-caps that seem to be in-line with the transports. The coming week should be interesting as the bulk of small and mid-cap companies come forward with their numbers. This could be a telling sign if this rally still has legs or not.

Happy Hunting!

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