Weekly Market Update – 20 November 2017 BMO

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Dex

Lots of Noise, Little Movement

The U.S. equity market ended a busy week little changed, with the benchmark S&P 500 losing just 0.1%. Meanwhile, the Dow dropped 0.3% this week, while the Nasdaq and small-cap Russell 2000 outperformed, finishing with gains of 0.5% and 1.2%, respectively.

Investors continued to keep an eye on Capitol Hill, where Republican lawmakers are trying to implement the biggest tax overhaul in more than 30 years. The House passed its version of a tax reform bill on Thursday, while the Senate continued to make changes to its version, which now includes a provision to repeal the Affordable Care Act’s individual mandate.

Retailers dominated this week’s batch of earnings–one of the final batches of the third quarter earnings season.

Shares of Wal-Mart (WMT) jumped 10.9% to a new all-time high on Thursday after the world’s largest retailer reported better-than-expected earnings and revenues for the third quarter and issued upbeat profit guidance for fiscal year 2018. Conversely, shares of Target (TGT) tumbled 9.9% on Wednesday after the company issued a disappointing earnings forecast for the holiday season.

Ross Stores (ROST), Gap (GPS), Advance Auto (AAP), Foot Locker (FL), Abercrombie & Fitch (ANF), Buckle (BKE), Shoe Carnival (SCVL), and Hibbett Sports (HIBB) all soared after beating quarterly profit estimates. Most also beat sales estimates, and many provided upbeat guidance.

Unsurprisingly, the S&P 500’s consumer discretionary (+1.3%) and consumer staples (+1.0%) sectors, which house retailers, finished near the top of the week’s sector standings. The telecom services (+0.8%) group also outperformed, trimming its November loss to 2.1%.

On the flip side, the energy sector (-3.4%) struggled, giving back the prior week’s advance and then some. The price of crude oil decreased at the beginning of the week–which didn’t bode well for the energy group–but the commodity bounced back on Friday to end the week little changed; West Texas Intermediate crude futures slipped 0.1% to $56.71 per barrel.

Industrial shares also underperformed after General Electric (GE) cut its dividend by half and dialed back its profit forecast for 2018. GE shares ended the week lower by 11.1%, extending their year-to-date decline to 42.4%. The S&P 500’s industrial sector lost 1.1% for the week.

In the bond market, U.S. Treasuries moved in a curve-flattening trade, sending the 2yr-10yr spread to its lowest level since 2007. The yield on the benchmark 10-yr Treasury note dropped five basis points to 2.35%, while the 2-yr yield climbed six basis points to 1.72%.

Following this week’s events, investors still strongly believe that the Fed will raise rates next month, with the CME FedWatch Tool placing the chances of a December rate hike at 100.0%.

(Excerpts from Briefing.com)

Dollar: Dollar Tracks Weekly Loss

Bonds: Long End Remains Strong

Commodities: Crude falls back after six-week rally

Gold and Silver continue to strengthen and Copper falls for a second week. Baker Hughes total U.S. rig count increased by 8 to 915 following last week’s increase of 9.

Agriculture: Soy breaks down, Corn continues decline, Wheat falls back

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THE WEEK AHEAD

Week 47 is a shortened trading week with only three and a half trading sessions. The market is usually uneventful as it awaits Black Friday.

Monday 20 to 24 November (Week 47)

The forty-seventh week of 2017 (wk47) is bullish over all timeframes on our seasonal models on the SPY and DIA.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 47;

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Key Economic Dates

In the US, the most important events are the FOMC minutes release, existing home sales and durable goods. In the UK, investors will be waiting for the Autumn Budget. Elsewhere, flash PMIs for the Euro Area, Germany, France and Japan will also be in the spotlight.

Mon 20 November

Tue 21 November

Wed 22 November

Thu 23 November

Fri 24 November

SUMMARY

Yields have closed to scary records. The 2/10 spread is now at 2007 levels like a deja-vu.

Yields

Other indicators are starting to reveal weakness in this bull run and the usually reliable seasonal statistics have been rubbished in the last two weeks – usually a reliable sign of changing sentiment.

With the shortened week ahead and all that Central Banking attention, I will be abstaining from any trading until after Black Friday weekend.

Happy Hunting!

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