Weekly Market Update – 06 November 2017 BMO

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DEXES

Bulls Hurdle a Heap of Headlines

The equity market moved higher once again this week, with all three major indices settling at fresh record highs. The tech-heavy Nasdaq led the charge, adding 0.9%, while the Dow and the S&P 500 climbed 0.5% and 0.3%, respectively. Small caps underperformed, sending the Russell 2000 lower by 0.9%.

Some of the week’s most notable headlines came out of the nation’s capital, including details on the House’s tax reform bill, which were released on Thursday. Highlights of the bill include an immediate–and permanent–reduction in the corporate tax rate from 35.0% to 20.0%, a repeal of state and local tax deductions–with the exception of a $10,000 limit for property taxes, a limit for mortgage interest deductions on new home loans of less than $500,000 (adjusted from $1,000,000), and no major changes to 401(k) tax laws.

Stocks initially sold off in reaction to the bill, but quickly bounced back.

Elsewhere in Washington, President Trump nominated Fed Governor Jerome Powell for the position of Fed Chair, and the Federal Open Market Committee unanimously voted to leave the fed funds target range at 1.00%-1.25%, as expected. The U.S. central bank reiterated its belief that the economy will continue to expand at a moderate pace and said nothing to alter the market’s expectation for a rate hike in December; the CME FedWatch Tool places the chances of a December rate hike at 100.0%, up slightly from 99.9% last week.

The Employment Situation Report for October crossed the wires on Friday, showing below-consensus nonfarm payrolls (+261,000 actual vs +300,000 Briefing.com consensus), nonfarm private payrolls (+252,000 actual vs +307,000 Briefing.com consensus), and average hourly earnings (0.0% actual vs +0.1% Briefing.com consensus). Still, the market took the report in stride as it confirmed that the labor market is still strong, but that strength hasn’t resulted in a pick up in wages–and thereby inflation.

As for earnings, several tech heavyweights reported their quarterly results this week, including Apple (AAPL) and Facebook (FB). The two companies finished the week higher, adding 5.8% and 0.6%, respectively, after both beat earnings and revenue estimates. The S&P 500’s technology sector (+1.8%) finished at the top of the week’s sector standings.

The energy sector (+1.7%) also outperformed, moving in tandem with the price of crude oil, which jumped 3.3% to $55.66/bbl–marking its highest close since July 2015.

On the downside, the consumer discretionary, health care, industrials, and materials sectors struggled, losing between 0.5% and 0.8%. Within the industrial group, transports showed particular weakness, sending the Dow Jones Transportation Average lower by 1.8%. The telecom services group (-2.6%) finished at the very bottom of the leaderboard once again, extending its 2017 loss to 17.4%.

(Excerpts from Briefing.com)

Reviewing Friday’s economic data, which included the Employment Situation Report for October, the October ISM Services Index, the September Trade Balance, and September Factory Orders:

Dollar Climbs Despite Elusive Wage Inflation

Bonds Yields: Strong Week Ends on Higher Note

Commodities: Gold falls further, Silver and Copper bounce, Crude rallies for fourth week

Baker Hughes total U.S. rig count decreased by 4 to 909 following last week’s decrease of 15.

Agriculture: Soy bounces, Corn strengthens, Wheat continues to consolidate 

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THE WEEK AHEAD

Week 45 is the fifth week of Q3 Earnings Season with the bulk of the retail and tech issues announcing their results.

Monday 06 to 10 November (Week 45)

The forty-fifth week of 2017 (wk45) is mildly bearish 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 45;

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Key Economic Dates

In the US, important releases include the preliminary reading of the Michigan consumer sentiment and consumer credit. In Asia, the spotlight will take: China trade, consumer and producer prices, Japan machinery orders and Hong Kong and Indonesia GDP growth. Investors will also be following UK industrial output, Euro Area retail sales and the RBA interest rate decision.

Mon 06 November

Tue 07 November

Wed 08 November

Thu 09 November

Fri 03 November

SUMMARY

It is an extremely busy period for me now so please accept my apology for not having a Monthly Report for November.

To keep it short, I am still bullish albeit cautiously bullish and will only be trading the high probability stuff in a conservative fashion until we get a decent correction. The market is looking more and more nervous as it climbs higher even as the US economy continues to show strength and evidence that this rally could be sustained. The flattening yield curve is definitely an ominous sign for the months ahead but valuations, the biggest concern now, are becoming ridiculous.

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Happy Hunting!

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