Weekly Market Update – 30 October 2017 BMO

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DEXES

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.

(Excerpts from Briefing.com)

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.

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.

Agriculture: Soy drops further, Corn and Wheat consolidate 

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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 forty-fourth week of 2017 (wk44) is 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 44;

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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

Tue 31 October

Wed 01 November

Thu 02 November

Fri 03 November

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

The last time the NASDAQ outpaced the DOW by more than 2% was in 2002. Soon after, the market went into a tailspin.

FriDex

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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