Weekly Market Update – 30 October 2017 BMO
Tech Rally Leaves Stocks With Yet Another Weekly Gain
Facing its first weekly loss since the week ended September 8, the stock market rallied on Friday, underpinned by the latest batch of earnings, which featured impressive results from mega-cap names like Amazon (AMZN 1100.95, +128.52), Microsoft (MSFT 83.81, +5.05), and Alphabet (GOOG 1019.27, +46.71). The three companies finished at new record highs, as did the S&P 500 (+0.8%) and the tech-heavy Nasdaq (+2.2%). The Dow (+0.1%) also moved higher, but finished a ways behind its peers due to select underperformers.
Stocks began the week on a lower note as investors cashed in on last week’s record highs, but reclaimed their losses on Friday, thanks to an impressive batch of technology earnings. The major indices finished the week in positive territory, with the Nasdaq, the Dow, and the S&P 500 adding 1.1%, 0.5%, and 0.2%, respectively. The S&P 500 and the Nasdaq settled Friday at new all-time highs.
The S&P 500’s technology sector (+2.9%) kept the broader market afloat with little help from its peers, easily settling at the top of the sector standings. The group was underpinned by Microsoft(MSFT), Alphabet (GOOG), and Intel (INTC), which added between 4.8% and 7.4% on Friday after reporting better-than-expected earnings and revenues for the third quarter.
Amazon (AMZN) also surged on Friday, jumping 13.2%, after beating both top and bottom line estimates. The company’s positive performance boosted the consumer discretionary sector, which finished the week with a gain of 1.1%.
On the downside, the health care sector (-2.1%) struggled this week, with biotechnology names leading the retreat. Celgene (CELG) showed particular weakness, ending the week lower by 19.1%, after missing revenue estimates for the third quarter and lowering its 2020 long-term financial targets on Thursday.
The consumer staples sector also lagged, moving lower by 1.5%. Within the group, CVS Health (CVS) plunged 9.8% following unconfirmed reports that the pharmacy retailer has made an offer to acquire managed health care company Aetna (AET) for more than $200 per share. Aetna shares ended the week higher by 7.6%.
On the data front, the advance GDP report showed that the U.S. economy increased at annual rate of 3.0% in the third quarter (Briefing.com consensus 2.4%), marking the second straight quarter the annualized rate has been 3.0% or higher. However, the headline number was inflated by a change in inventories, while real final sales decelerated to 2.3% from 2.9% in Q2.
In other words, the U.S. economy is proceeding largely at the same ho-hum pace.
Elsewhere, speculation as to who will become the next Fed Chair continued this week, and it appears increasingly likely that current Fed Chair Janet Yellen will be replaced by either Fed Governor Jerome Powell or Stanford University economist John Taylor. Bloomberg reported on Friday that President Trump is leaning toward Mr. Powell.
Following this week’s events, the CME FedWatch Tool places the chances of a December rate hike at 99.9%, up from 93.1% last week.
- Dow Jones Industrial Average +18.6% YTD (up for the week +2.9%)
- Nasdaq Composite +24.5% YTD (up for the week +1.8%)
- S&P 500 +15.3% YTD (up for the week +1.3%)
- Russell 2000 +11.1% YTD (up for the week +0.4%)
(Excerpts from Briefing.com)
- The advance GDP report showed the U.S. economy increased at annual rate of 3.0% in the third quarter (consensus 2.4%), marking the second straight quarter the annualized rate has been 3.0% or higher. The last time GDP growth was 3.0% or higher for two straight quarters was Q2 and Q3 of 2014. The GDP Price Deflator was up 2.2% (consensus 1.8%).
- The headline surprise was driven by the change in private inventories, which contributed 0.7 percentage points. Real final sales, which exclude the change in private inventories, decelerated to 2.3% from 2.9% in the second quarter on some soft consumer spending activity.
- Granted the hurricanes created some temporary growth headwinds, but when the layers are peeled back, the key takeaway is that U.S. economic activity is proceeding largely at the same ho-hum pace, evidenced by the prior 12-quarter average of 2.4% for real final sales.
- The final October reading for the University of Michigan’s Index of Consumer Sentiment showed a slight dip to 100.7 (consensus 101.1) from the preliminary reading of 101.1 and the final reading of 95.1 for September.
- Despite the dip, the index remains at its highest monthly level since the start of 2004 and it stands above 100.0 for only the second time since the end of the record 1990’s expansion.
- The conflict between Catalonia and Spain’s central government intensified after the Catalan Parliament declared independence and the Spanish Senate responded by invoking Article 155, which will suspend home rule in Catalonia.
Currencies: Weekly Gain Extended
The U.S. Dollar Index is higher by 0.4% at 94.95, extending this week’s gain to 1.3%. The solid advance comes after three weeks of sideways action that had the index trapped inside a narrow range between 92.7 and 94.3. The greenback recorded the bulk of this week’s gain during yesterday’s rally against the euro, but today’s session has seen a bit more of the same. A better than expected advance look at Q3 GDP (actual: +3.0%; Briefing.com consensus: 2.2%) supported today’s uptick in the dollar while an independence declaration in Spain’s richest autonomous region added to the negative sentiment surrounding the euro, which slid to its lowest level since late July.
Bonds Yields: Curve Steepens on Earnings and Economic Data
U.S. Treasuries ended Friday on a higher note, trimming some of their losses from the earlier portion of the week. The market began the day on a lower note and saw a bit more selling in response to a better than expected advance reading of Q3 GDP (actual: +3.0%; consensus: 2.2%). The morning retreat pressured the market into the neighborhood of Wednesday’s low, but that level held, and the subsequent reversal accelerated after Bloomberg reported that President Trump is leaning towards appointing Jerome Powell as the next Chairman of the Federal Reserve. The late-morning spike was followed by sideways action into the close. This week’s selling sent the 10-yr yield higher by five basis points while the 2s10s spread ended the week at 83 bps, up two basis points from last Friday.
- 2-yr: up 2bps to 1.59% from 1.57% the previous week
- 5-yr: up 2bps at 2.04% from 2.02%
- 10-yr: up 4bps to 2.42% from 2.38%
- 30-yr: up 5bps to 2.94% from 2.89%
Commodities: Metals fall, Crude rallies for third week
Baker Hughes total U.S. rig count decreased by 4 to 909 following last week’s decrease of 15.
- December Crude Oil futures: $53.91/barrel from $51.93/barrel the previous week
- December gold: $1272.1/oz from $1280.30/oz
- December silver: $16.76/oz from $17.04/oz
- December copper: $3.10/lb from $3.17/lb
Agriculture: Soy drops further, Corn and Wheat consolidate
- December corn closed at $3.48/bushel from $3.44/bushel the previous week
- December wheat closed at $4.27/bushel from $4.26/bushel
- November soybeans closed at $9.72/bushel from $9.78/bushel
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THE WEEK AHEAD
Week 44 is the fourth week of Q3 Earnings Season with the bulk of the industrials and energy issues announcing their results.
Monday 30 October to Friday 03 November (Week 44)
- The final week of October has seen some major crashes but normally ends very bullish
- First trading day of November has been up on the DOW 5 of the last 7
- November usually starts out bullish
The forty-fourth week of 2017 (wk44) is bullish across all the average timeframes on our seasonal models.
The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 44;
- DOW, S&P500 and NASDAQ are bullish all week.
Key Economic Dates
It will be a busy week in the US with the Fed’s monetary policy meeting and the jobs report. Other key data include trade, PCE prices and ISM PMIs. Elsewhere, the BoE and the BoJ will also provide an update on their monetary policy. Other important releases are UK Markit PMIs; Eurozone GDP growth and inflation; Japan industrial production and unemployment and China PMIs.
Mon 30 October
- EU – German Retail Sales m/m
- UK – Net Lending to Individuals m/m
- US – Core PCE Price Index m/m, Personal Spending m/m
- Australis – Building Approvals m/m
- China – Manufacturing PMI, Non-Manufacturing PMI
- Japan – Monetary Policy Statement
Tue 31 October
- Japan – BOJ Outlook Report, BOJ Policy Rate, BOJ Press Conference
- EU – CPI Flash Estimates y/y, Core CPI Flash Estimates y/y, EU Economic Forecasts, Prelim Flash GDP q/q
- US – Consumer Sentiment, Employment Cost index q/q, Chicago PMI
- China – Caixin Manufacturing PMI
Wed 01 November
- UK – Manufacturing PMI
- US – ISM Manufacturing PMI, ADP Non-Farm Employment Change, Crude Inventories, FOMC Statement, Federal Funds Rate
- China – Caixin Manufacturing PMI
Thu 02 November
- UK – Construction PMI, BOE Inflation Report, MPC Official Nak Rate Votes, Monetary Policy Summary, Official Bank Rate, Asset Purchase Facility, MPC Asset Purchase Facility Votes, BOE Gov Carney Speaks
- US – Initial Claims, Prelim Nonfarm Productivity q/q, Prelim Unit Labor Costs q/q
- Australia – RBA Monetary Policy Statement, Retail Sales m/m
Fri 03 November
- UK – Services PMI
- US – Non-Farm Employment Change, Unemployment Rate, Trade Balance, ISM Non-Manufacturing PMI, Factory Orders m/m
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.
- Monday (October 30)
- BMO: D, FDC, SRE, ROP, MCY, CTB, KMPR, AMG, ACCO, ARLP
- AMC: MDLZ, EIX, CBI, SANM, RE, OLN, AMKR, KBR, SSD
- Tuesday (October 31)
- BMO: SNE, BP, ADM, AET, PFE, MA, K, PEG, FIS, OSK, AKS, UAA, HRS, XYL, DBD, LL, IIVI, SHOP, FLWS, TYPE, XOXO
- AMC: CHRW, DVN, X, OKE, APC, TX, FTR, VOYA, EA, TEX, WES, WGP, VRSK, CHKP, PZZA, HCLP, DDD, GPT, RPAI, RGR
- Wednesday (November 01)
- BMO: AVA, AGIO, STRA, ACRE, MMYT, ITG, COMM, BG, CVRR, ZAGG, WRLD, SODA, CLX, WFT, EL, LFUS, TEL, HMC, ALE, ICPT, NYT, CDW, AGN, GNRC, AMRN, FLOW, SO, BDC, STE, GRPN, EAT
- AMC: MET, PRU, FB, ALL, QCOM, LBTYA, XPO, CYH, LNC, TSLA, CZR, HBI, EQIX, CACI, MRO, AWK, GPRE, CAKE, FIT, ADSW, AEGN, GPRO, CHDN, YELP, FEYE, BOJA, DENN, WTI, SHAK, HABT, GLUU, HIIQ, LPSN, QDEL, CLVS, JUNO
- Thursday (November 02)
- BMO: RDS.A, ABC, DWDP, ENB, CI, SNY, EXC, BABA, ARW, EPD, BCE, TEVA, AN, FMS, PBF, NRG, BDX, ADP, BLL, LDOS, WLTW, RL, DISCA, THS, YUM, ZTS, W, H, CHK, RACE, GCI, AMCX, FUN
- AMC: AAPL, AIG, SBUX, MOH, FLR, ED, LYV, CBS, HLF, SEM, TSE, MRC, P, BRSS, BKH, RICE, AHT, MELI, CHUY, OLED, HTGC, RUBI, WING, CERS, IMMR, RDUS, EYES, Y
- Friday (November 03)
- BMO: DUK, CBG, FTS, UNVR, VST, RLGY, AXL, PNW, MCO, XRAY, CNK, HY, MSG
SUMMARY
The last time the NASDAQ outpaced the DOW by more than 2% was in 2002. Soon after, the market went into a tailspin.
Let’s hope history won’t repeat itself. In the meantime, the Nikkei extended its run to close the week above 22,000 for the first time in 21 years, since July 1996.
Singapore’s seasonally adjusted unemployment rate edged down to 2.1 percent in the September quarter of 2017 from 2.2 percent in previous three quarters, preliminary estimates showed. It was the lowest jobless rate since the third quarter 2016. Consumer prices in Singapore increased 0.4 percent from a year earlier in September of 2017, the same pace as in the prior month and line with market expectations. The inflation figure remained the lowest since April, as food inflation was similar to the preceding month while cost of transport increased at a slower pace.
On the whole, there is little cause for worry that any recession is likely in the coming months but the market continue to get more and more overbought. That correction we’ve been waiting for may never come … but then there’s always those famous last words.
Happy Hunting!
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