Weekly Market Update – 11 September 2017 BMO

Screen Shot 2017-06-28 at 3.00.52 PM

Screen Shot 2017-09-09 at 12.05.11 PM

Still Within Striking Distance

The major U.S. indices all moved lower this week as geopolitical tensions with North Korea, declining confidence in the feasibility of tax reform, and Hurricane Irma–which is expected to hit Florida this weekend–weighed on investor sentiment. The Nasdaq led the retreat, dropping 1.2%, while the Dow and the S&P 500 finished with respective losses of 0.9% and 0.6%.

Even though the equity market settled lower for the week, it remains within striking distance of its all-time high; the S&P 500 finished Friday’s session just 0.8% below its record-high close of 2,480.91. Treasuries rallied this week, sending yields to new lows for the year. The benchmark 10-yr yield dropped 11 basis points to 2.06%, hitting its lowest level since early November.

Similarly, other safe-haven assets–like gold and the Japanese yen–moved higher, jumping 1.6% and 2.3%, respectively. The yellow metal settled at a 13-month high ($1,351.10/ozt) while the dollar/yen pair finished at a ten-month low (107.78). In addition, the CBOE Volatility Index (VIX) spiked 20.2% to 12.18. The financial sector (-2.8%) was pressured by the decline in Treasury yields, but most of the remaining groups finished with losses of no more than 1.1%.

Relative strength in heavyweight names like Home Depot (HD), Exxon Mobil (XOM), and Pfizer (PFE) prevented the stock market from a significant decline, but there were some soft spots in small-cap and high-beta pockets of the market. The small-cap Russell 2000–which is seen as a leading indicator given that small-cap companies largely rely on domestic consumers–underperformed, dropping 1.0%. After pacing the stock market’s post-election rally, the small-cap index now holds a year-to-date gain of just 3.1%, far below the S&P 500’s year-to-date advance of 9.9%.

High-beta chipmakers also struggled, sending the PHLX Semiconductor Index lower by 2.3%. Large-cap names like Qualcomm (QCOM) and NVIDIA (NVDA) showed particular weakness, settling with losses of 4.6% and 4.0%, respectively. Still, for the year, the PHLX Semiconductor Index is higher by 20.6%.

Following this week’s events, the fed funds futures market places the chances of a December rate hike at 31.9%, down from last week’s 43.7%.

The major U.S. indices closed out the abbreviated week on Friday on a mixed note as investors looked ahead to the weekend, which could see Hurricane Irma’s arrival in Florida and another North Korean missile test in celebration of the country’s 69th anniversary. The Dow ticked up 0.1% while the S&P 500 and the Nasdaq settled with losses of 0.2% and 0.6%, respectively. For the week, the S&P 500 lost 0.6%.

Investors will not receive any economic data on Monday.

(Excerpts from Briefing.com)

Currencies: Dollar Index Hits Fresh 2017 Low … Again

The U.S. Dollar Index went down 0.4% at 91.32, having erased roughly half of its earlier loss on Friday. The intraday rebound is a small victory, considering the index lost 1.6% for the week, ending at its lowest level since the start of 2015. The greenback saw broad-based weakness in overnight action, retreating against the yen and commodity currencies while the People’s Bank of China kept the pressure on the dollar by setting the yuan fix higher for the tenth day in a row. Surprisingly, the higher fix was followed by a Reuters report, which revealed that policymakers in China are now worried about yuan’s strength after the recent (PBoC-assisted) push to a high not seen since the end of 2015. The greenback climbed off its low in morning action, maintaining a narrow intraday range. The S&P 500 hovers just below its flat line while the Nasdaq (-0.5%) underperforms.

Bonds Yields: 10-yr Yield Logs Lowest Weekly Close Since November

U.S. Treasuries finished a strong week on a quiet note. An overnight bid pressured yields to yesterday’s lows, putting the cash market on track for a higher start. The higher open was followed by modest selling, which slowed shortly after Treasuries dipped back to their flat lines. The morning retreat gave way to a sideways drift, which continued into the close. The 2-yr note bucked the trend, ending in the green. The 2-yr yield fell nine basis points for the week while the 10-yr yield dropped 10 basis points, ending at its lowest level since the start of November. Hurricane Irma is expected to make landfall over the weekend and a North Korean missile test is expected to take place tomorrow. The U.S. Treasury will auction $56 billion in 3-yr, 10-yr, and 30-yr notes and bonds next week.

Yields fell across the board in a huge flight-to-safety causing spreads to narrow even more this week.

Commodities: Commodities end the week up noticeably higher

Crude broke its five-week losing streak, Gold and Silver continue to strengthen, Copper falls back down. Baker Hughes total U.S. rig count increased by 1 to 944 following last week’s increase of 3

Agriculture: Corn, Soy shows more strength. Wheat drops back down. 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

The week ahead is the most bullish week of quarter three but is usually followed by the most vicious sell-off of the quarter too. Be advised not to get ahead of the market and get too caught up in the run up.

Monday 11 to Friday 15 September (Week 37)

The thirty-seventh week of 2017 (wk37) is extremely bullish for the DIA and SPY across the 5, 10 and 15 year averages.

Screen Shot 2017-09-09 at 1.43.48 PM

The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 37;

Screen Shot 2017-09-09 at 1.43.38 PM

Key Economic Dates

The week is light on key data to move the market in any serious or sustainable fashion. In the US, the most important events will be inflation rate, retail trade, industrial production and the preliminary reading of Michigan consumer sentiment. Elsewhere, the BoE will announce its interest rate decision; the UK will release inflation, unemployment and wage growth; the Eurozone industrial production; China industrial output, retail trade and fixed asset investment.

Mon 11 September

Tue 12 September

Wed 13 September

Thu 14 September

Fri 15 September

SUMMARY

Last week, I mentioned;

In spite of the tensions, given that week 37 is usually incredibly bullish (ahead of the notorious September sell-off), I remain cautiously bullish for now.

I don’t think Irma will make a huge dent in the market. In fact, I think several key and major listing could make gains as a result of Irma. Still, I remain cautiously bullish.

Happy Hunting!

 

 

Share

If you enjoyed this post, please consider to visit Pattern Trader Tools, leave a comment or subscribe to the feed and get future articles delivered to your feed reader.

Comments

No comments yet.

Sorry, the comment form is closed at this time.