Weekly Market Update – 18 September 2017 BMO

Screen Shot 2017-06-28 at 3.00.52 PM

Screen Shot 2017-09-16 at 1.38.35 PM

Movin’ On Up

Stocks rallied to new record highs this week–more than making up for last week’s decline–following Hurricane Irma’s weaker-than-expected Florida landfall and ahead of next week’s FOMC meeting. The Dow led this week’s advance, climbing 2.2%, followed by the S&P 500 (+1.6%), and then the Nasdaq (+1.4%). For the year, the S&P 500 now holds a gain of 11.7%.

The bulk of this week’s gain came right off the bat as investors happily dialed back their estimates on Monday for damages related to Hurricane Irma, which quickly petered out after hitting the Florida Keys on Sunday. Insurers like Travelers (TRV) led the Monday rally, underpinned by the prospect of fewer-than-expected hurricane related claims, but much of their gains were unwound by the end of the week.

Equities followed up their stellar Monday performance with another win on Tuesday, but conviction was much more modest. Apple (AAPL) held its annual product event, in which the company unveiled a trio of iPhones, including the iPhone 8, the iPhone 8 Plus, and the high-end iPhone X–which CEO Tim Cook called “the biggest leap forward since the original iPhone.”

On the whole, Tuesday’s product event provided little new information as many of the details had been leaked beforehand. Apple sold off immediately following the event, with some investors citing concerns related to the iPhone X’s later-than-expected release date (November 3). However, the tech giant bounced back on Friday, extending its massive year-to-date gain to 38.0%.

Following Tuesday’s modest victory–which sent all three major U.S. indices to new record highs–the stock market took a breather, ending the week in a sideways trend. The Nasdaq ticked lower in the latter half of the week, settling just a step below its record high, while the S&P 500 and the Dow ticked up, further extending their record marks.

Investors largely ignored North Korea’s latest missile launch, which flew over northern Japan on Friday morning, continuing the week’s safe-haven sell off. After hitting a 10-month low last week, the yield on the benchmark 10-yr Treasury note climbed 14 basis points this week, settling at 2.20%. Meanwhile, the 2-yr yield climbed 13 basis points to finish at 1.38%.

A hotter-than-expected August CPI reading (+0.4% actual vs +0.3% consensus), which showed a year-over-year increase of 1.9%, prompted an adjustment in rate-hike expectations. According to the CME FedWatch Tool, investors currently place the chances of a December rate hike at 57.8%, up from last week’s 31.0%.

However, the Fed’s massive balance sheet will be the focus of next week’s FOMC meeting as it is widely expected that Fed Chair Janet Yellen will announce the start of a gradual reduction of assets bought in response to the 2008 financial crisis. The two-day FOMC meeting will kick off on Tuesday with the announcement due at 2pm (EST) on Wednesday.

Reviewing Friday’s big batch of economic data, which included August Retail Sales, August Industrial Production & Capacity Utilization, the preliminary reading of the University of Michigan Consumer Sentiment Index for September, the September Empire State Manufacturing Index, and July Business Inventories:

(Excerpts from Briefing.com)

Currencies: Dollar Bounces Despite Weak Data

The U.S. Dollar Index went down Friday 0.3% at 91.89, trimming this week’s gain to 0.6% after being up nearly 1.5% for the week on Thursday.. The greenback slumped in overnight action, hitting its session low right after the release of a disappointing Retail Sales report for August (actual: -0.2%; consensus: 0.1%), which prompted the Federal Reserve Bank of Atlanta to lower its GDPNow forecast for Q3 GDP to 2.2% from 3.0%. The remaining data points were mostly disappointing as well, but the dollar spent the day climbing off its morning low nonetheless. The British pound distinguished itself once again, spiking 1.3% against the dollar amid a seven-basis point increase in the 10-yr gilt yield (1.31%) as the market starts giving more serious consideration to a rate hike being announced as early as November.

Bonds Yields: Market Holds Despite Weak Data

U.S. Treasuries finished a down week on a modestly lower note. In a way, the Friday session resembled Thursday’s affair when the market saw some intraday volatility only to end little changed. Interestingly, a disappointing batch of data invited only a short-lived bid, leaving the 10-yr note near this week’s low while the 2-yr finished the week on its low. The market didn’t see sustained buying interest even though Q3 GDP estimates were lowered in response to weak Retail Sales for August (actual: -0.2%; consensus: 0.1%). The 10-yr yield rose 14 bps for the week and the 2s10s spread ticked up a basis point to 82 bps.

Shorter maturity yields rebounded to flatten the curve.

Screen Shot 2017-09-16 at 2.11.37 PM

Commodities: Commodities end the week up noticeably higher

Crude continued its strength from last week’s retracement. Gold and Silver fall back, Copper continues to weaken to close below $3.00. Overall, commodities, as measured by the Bloomberg Commodity Index, are currently up +0.12% at 85.1949. Baker Hughes total U.S. rig count decreased by 8 to 936 following last week’s increase of 1.

Agriculture: Corn stalls, Soy shows continued strength. Wheat bounces off its low. 

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

THE WEEK AHEAD

The week is expected to start in a very bullish fashion and end in an extremely bearish mood leading into the final and most treacherous week of September.

Monday 18 to Friday 22 September (Week 38)

The thirty-eight week of 2017 (wk38) is extremely bearish for the DIA and SPY across the 5, 10 and 15 year averages.

Screen Shot 2017-09-16 at 1.42.29 PM

The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 38;

Screen Shot 2017-09-16 at 1.42.16 PM

Key Economic Dates

The coming week’s most important events will be Fed and Bank of Japan monetary policy decisions. Other key data to be published include US flash PMIs, housing statistics, existing home sales and current account; UK retail trade and CBI factory orders; the Eurozone flash PMIs, consumer sentiment and inflation; and China house prices.

Mon 18 September

Tue 19 September

Wed 20 September

Thu 21 September

Friday 22 September

SUMMARY

A little bird told me to expect a huge amount of dumping between the last week of September and the first two weeks of October. Even if the bird is an unreliable source, the next three weeks are the most notorious weeks in market history. Then come the last two weeks of October which hosts a slew of catastrophic anniversaries like the 1987 and 1929 crashes.

I am not going to discount irrational fear bringing the indices down in the coming weeks. However, I won’t bet my house on it either.

Happy Hunting!

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

FOOTNOTE:

Tell a friend about this week’s Preview for the last batch of 2017. The next one won’t be for another three to four months after that.

Details here: TUTORIAL PREVIEW – LAST PTT FOR 2017

Or register here: PATTERN TRADER TUTORIAL INTRODUCTORY SESSION

 

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.