Weekly Market Update – 23 October 2017 BMO

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Dexes

October Rally Continues

The stock market advanced once again this week, notching a new record high in all five sessions, as investors digested another batch of third quarter earnings. The S&P 500 finished higher by 0.9%, while the Dow (+2.0%) did noticeably better and the Nasdaq (+0.4%) did modestly worse. For the month, the S&P 500 has added 2.2%.

Equities had their best performance on Friday after the Senate voted in favor of a budget blueprint for 2018–a crucial step for an eventual tax overhaul. If the upper chamber can reconcile its version of the budget with the version the House passed earlier this month, Republicans will have the ability to pass tax reform without any support from the Democrats under the reconciliation process.

The S&P 500’s financial sector (+2.0%) was in focus for much of the week thanks to heavyweights like Goldman Sachs (GS) and Morgan Stanley (MS), both of which reported third quarter results on Tuesday morning. Goldman Sachs initially sold off following its release, but bounced back later in the week to finish higher by 2.6%. Morgan Stanley did even better, climbing 4.9%.

Health care stocks also rallied this week, with Dow components UnitedHealth (UNH) and Johnson & Johnson (JNJ) pacing the advance. The two companies ended the week higher by 7.8% and 4.4%, respectively, after reporting better-than-expected earnings on Tuesday. The health care sector added 1.8%, finishing right behind financials at the top of the leaderboard.

Technology giant IBM (IBM) had a strong week, surging 10.2%, after reporting better-than-expected profits and sales on Tuesday afternoon. The company’s positive performance helped the top-weighted technology sector climb 1.0% and helped the price-weighted Dow Jones Industrial Average finish comfortably above the other major indices.

Telecom stocks within the S&P 500 finished slightly ahead of the broader market. Wireless giant Verizon (VZ) was a positive influence, climbing 3.5%, as investors rallied around its above-consensus earnings. The telecom services sector added 1.1% this week, but the advance did little to change the group’s overwhelmingly bearish October trend; telecoms have dropped 4.7% month-to-date.

The consumer staples sector finished at the very bottom of the sector standings with a loss of 1.2%. Procter & Gamble (PG) and Philip Morris (PM) were among the most notable laggards within the group. P&G slipped 5.2% despite reporting above-consensus earnings, while Philip Morris lost 3.9% after missing both top and bottom line estimates and issuing disappointing guidance.

Speculation surrounding President Trump’s Fed Chair nomination heated up this week. Current Fed Chair Janet Yellen could be appointed for another four-year term, but reports indicate that Fed Governor Jerome Powell and Stanford University economist John Taylor are the two leading candidates. Fed Governor Kevin Warsh and chief economic advisor Gary Cohn are also still in the mix.

Following this week’s events, the CME FedWatch Tool places the chances of a December rate hike at 93.1%, up from 82.9% last week.

(Excerpts from Briefing.com)

Currencies: Tracking Weekly Gain

The U.S. Dollar Index is up 0.4% at 93.66, looking to finish near its best level of the week. The index is tracking a weekly gain of 0.6%, having retraced the bulk of last week’s drop. The greenback climbed against the euro and yen in overnight action, continuing its advance against the euro into the U.S. session. The dollar spiked against the Canadian dollar in response to weak Canadian retail sales, and displayed broad strength against minor and exotic currencies.

Bonds Yields: Treasuries Slide, Spreads Tighten

The U.S. Treasury market ended a down week on a lower note after overnight selling in the futures market continued into the cash session. Treasury futures began sliding on Thursday evening, responding to the Senate’s passage of a budget package. It was a close call as only 51 senators voted in favor, but the budget will now be considered in the House of Representatives. Furthermore, this represents a step towards tax reform, provided the House does not make any changes to the budget proposal. Today’s selling pressured 2s and 5s to fresh swing lows while 10s and 30s paused near their lows from early October.

Commodities: Copper keeps rallying, Silver and Gold fall back, Crude rallies for second week

Baker Hughes total U.S. rig count decreased by 15 to 913 following last week’s decrease of 8. 

Agriculture: Grains fall across the board 

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THE WEEK AHEAD

Week 43 is the last trading week for October and the third week of Q3 Earnings Season, the busiest week for earnings.

Monday 23 to Friday 27 October (Week 43)

The forty-third week of 2017 (wk43) is  very bullish across all the average timeframes on our seasonal models.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 43;

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Key Economic Dates

In the US, the most important releases will be the advance estimate of GDP growth, durable goods orders, pending and new home sales, and flash Markit PMIs. Elsewhere, the ECB will announce its interest rate decision, and key data to be released include UK GDP growth; Japan inflation rate and manufacturing PMI; Australia inflation rate; and flash PMI data for the Eurozone, Germany and France.

Mon 23 October

Tue 24 October

Wed 25 October

Thu 26 October

Fri 27 October

Earnings (highlights) Calendar for the week of October 23rd

The busiest week of earnings season sees no less than a dozen of the DOW components on the line. Besides the DOW pieces, we’re also getting numbers from many big and significant players such as, GOOG, AMZN, HAL, LMT, GM, GD, NOC, T, UPS, FCX, LVS, AMGN, F, MO, CELG, BIDU and LLL to name a few.

SUMMARY

As of Friday’s close, the Nikkei completed a historical run of 14 straight gains. The Nikkei Stock Average closed on Friday at 21,457, up 9 points from Thursday.

Nikkei

This streak broke a 57 year-old record. The previous 14-day period began in December 1960 and ended in January 1961. Japan holds an election Sunday and Prime Minister Shinzo Abe’s ruling coalition is projected to remain in power. Abe has helped push stocks up and the yen down by encouraging loose monetary policy.

In the same week, Chinese bond yields formed an inverted yield curve. Not good news for the Asian region is this inversion is sustained.

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Going forward 6 months to a year from now, we are likely to see slowdowns and even recessionary pressures if this inversion persists. You can read up on it here: www.linkedin.com/feed/update/

And then there all the talk about the en-bloc frenzy that gripping Singapore again. So before we get ahead of ourselves, please be reminded about how history repeats itself especially regarding Singapore’s property market;

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The pattern is an obvious and reliable one … and one that warns you not to follow the herd too eagerly. (Thanks JH JH for the finding this chart).

Happy Hunting!

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