Weekly Market Update – 28 August 2017 BMO

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Stocks Finish Week on a Positive Note

No news proved to be good news for the bulls the past week, giving them an opportunity to reclaim control of the U.S. equity market, which rode a two-week slide into Monday’s session. The S&P 500 and the Dow finished with gains of 0.7% apiece while the Nasdaq (+0.8%) finished a tick above its peers.

Ten sectors settled the week in the green–real estate (+2.3%), telecom services (+2.0%), materials (+1.3%), health care (+1.1%), technology (+1.0%), utilities (+1.0%), energy (+1.0%), financials (+0.8%), consumer discretionary (+0.4%), and industrials (+0.4%)–while one group finished in the red–consumer staples (-1.0%).

No News is Good News

The week’s most notable headlines in chronological order:

One of the most talked about news items this week was the possibility of a government shutdown. Without going into the political details, the gist for the market is simple; the probability of a government shutdown appears to be higher now than it was a week ago.

A shutdown may stifle economic growth a bit, but the market has traditionally held up pretty well during halts in government spending. To avoid a shutdown, Congress will need to pass a new spending bill, and President Trump will have to sign it, by the end of September.

Following this week’s events, the fed funds futures market now points to the June 2018 FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 58.0%. Last week, the market expected the next rate hike to occur in March 2018 with an implied probability of 51.5%.

(Excerpts from Briefing.com)

Currencies: Dollar Nearing 2017 Low

The U.S. Dollar Index is down 0.6% at 92.74, hovering within a point of its 2017 low, which was recorded at the start of August. The Index traded little changed in morning action, but dropped in response to Fed Chair Janet Yellen’s speech at the Jackson Hole Symposium. Chair Yellen used the forum to praise the Fed’s regulatory efforts and did not provide any updates about near-term changes to the central bank’s policy course. With no news about balance sheet reduction or rate-hike plans, the greenback retreated.

Bonds yields: Jackson Hole Doesn’t Rock the Boat

U.S. Treasuries ended the week on a higher note, helping longer-dated issues record slim gains for the week while the 2-yr note ended modestly lower. Way up front, the four-week bill also retreated this week, pushing its yield up three basis points to 0.99%. Treasuries climbed to highs as Fed Chair Janet Yellen delivered her speech at the Jackson Hole Symposium, giving no hints about plans for balance sheet reduction. Instead, the Fed Chair praised the central bank’s regulatory efforts. ECB President Mario Draghi spoke in the afternoon, but avoided mentioning the euro exchange rate. The ECB chief spoke in favor of open trade and argued for raising potential output growth, which was received as dovish. In sum, the two central bankers provided little to no new information. Treasury Secretary Steven Mnuchin reiterated that the debt ceiling will be raised in time to avoid technical default. The 2s10s spread ended the week at 84 bps, down from 88 bps last Friday. The S&P 500 is higher by 0.2% with the closing bell approaching.

For the week, spreads yet again narrowed as the yield curve continued to flatten by pivoting on the belly of the curve.

Commodities: Crude falls for the fourth week, Metals rebound. Baker Hughes total U.S. rig count decreased by 6 to 940 following last week’s decrease of 3.

Agriculture: Corn, Wheat close lower, Soy rebounds.

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THE WEEK AHEAD

August ends and the most bearish month of the trading year begins. More volatility ahead?

Monday 28 August to Friday 01 September (Week 35)

The thirty-fourth week of 2017 (wk35) is mildly bearish with mixed averages across the DIA and SPY on the 5 and 15 year averages. The 10 year average, however, shows a 70% possibility of a bearish week on the DIA and SPY.

The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 35;

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Key Economic Dates

In the US, the most important events are the second estimate of GDP growth, non-farm payrolls, unemployment rate and ISM manufacturing PMI. Elsewhere, key data include UK and Germany consumer morale; Eurozone inflation rate; Japan unemployment; China PMIs and GDP growth for India, Brazil and Canada.

Mon 28 Aug

Tue 29 Aug

Wed 30 Aug

Thu 31 Aug

Fri 01 Sep

SUMMARY

In last week’s update, I mentioned;

With Friday’s close, the Transports are now two closes below its 200DSMA which puts it in a technical bear market and only 13.7 points (0.15%) away from the year’s open. The Russell2000 index is also two closes below its 200DSMA and below the year’s open by 0.2 points.

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The Transports briefly fell into negative YTD but recovered on Friday but stays below its 200DSMA for seven straight closes. The Russell2000 is also seven straight closes below the 200DSMA but rose very impressively to close the week out above the year’s open after closing out the previous week in the red YTD.

The Benchmarks are looking more and more divergent as August closes in. This is a very nervous market right now.

Happy Hunting!

 

 

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