Weekly Market Update – 27 November 2017 BMO
More Record Highs
A festive mood struck Wall Street this week and it translated into further gains for the major indices, which culminated in new record highs for the S&P 500 and Nasdaq Composite.
The Russell 2000 led the way as domestically-oriented small-cap stocks were pushed up on tax reform optimism.
The Nasdaq Composite followed close behind with a 1.6% gain that was led by the familiar contingent of Apple(AAPL), Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG), Netflix (NFLX), and Microsoft (MSFT), as well as ongoing strength in the semiconductor stocks.
The Philadelphia Semiconductor Index jumped 2.7% for the week, underpinned by M&A activity that featured a bid by Marvell Technology (MRVL) to acquire Cavium (CAVM) and reports suggesting Broadcom (AVGO) might return next week with a higher offer to acquire Qualcomm (QCOM) after the latter company rejected its $70 per share cash-and-stock offer.
Beyond the news itself, though, the broader market was carried along by an embrace of the seasonality trade, which is to say participants rode the notion that this Thanksgiving week is often accented with a positive bias.
There was no denying the positive bias this time around.
The seasonality factor hit home in earnest on Tuesday when the major indices logged gains between 0.7% and 1.1% despite the Department of Justice filing a lawsuit to block the AT&T (T) – Time Warner (TWX) merger and a lack of any clear-cut news to explain the unmitigated bullish bias. That bullish bias took the S&P 500 above 2600 for the first time ever, squeezing short sellers and feeding a fear of missing out for sidelined participants.
There was only a slight retracement on Wednesday when the S&P 500 dropped two points despite an acknowledgment in the minutes for the October 31-November 1 Federal Open Market Committee meeting that “…several participants expressed concerns about a potential buildup of financial imbalances” given elevated asset valuations and low financial market volatility.
Those concerns could come home to roost at another time, but this week wasn’t governed by any unsettling concerns.
The market traded up, and through, reports that talks in Germany to form a coalition government had failed (although reports Friday suggested a coalition might be struck after all); it traded up, and through, Fed Chair Yellen’s announcement that she will be resigning from the Board of Governors upon the swearing in of Jerome Powell as Fed Chairman; and the stock market traded up, and through, another week in which a curve-flattening trade persisted in the Treasury market.
The spread between the 2-yr note yield and the 10-yr note yield narrowed to 60 basis points from 63 basis points a week ago and 125 basis points when the year began. A narrowing spread often piques concerns as being a harbinger of a slowdown in economic growth.
There wasn’t much economic data this week, although the few reports that there were generally surprised on the upside. The Leading Economic Index, Existing Home Sales, and University of Michigan Consumer Sentiment reports were all better than expected.
The Durable Goods Orders report for October was weaker than expected (-1.2%), yet the disappointment over that headline was mitigated by the understanding that the weakness was driven by volatile aircraft orders. Excluding transportation, durable goods orders rose 0.4% on the heels of an upwardly revised 1.1% increase (from 0.7%) for September.
The coming week will feature a longer lineup of economic data, including the New Home Sales (Monday), Consumer Confidence (Tuesday), revised Q3 GDP (Wednesday), Personal Income and Spending (Thursday), ISM Index (Friday), and Auto Sales (Friday) reports.
That data will be competing for market participants’ attention along with the confirmation hearing for Jerome Powell (Tuesday), Fed Chair Janet Yellen’s economic outlook testimony before the Joint Economic Committee (Wednesday), the meeting between OPEC members and Russia to discuss extending production cuts (Thursday), and the expected vote on the Senate’s tax bill (Thursday).
Clearly, then, there will be a lot to chew on for market participants in the coming week after they digest the fulfilling gains of another seasonally-strong Thanksgiving week.
- Dow Jones Industrial Average +19.1% YTD (up for the week +0.9%)
- Nasdaq Composite +28.0% YTD (up for the week +2.0%)
- S&P 500 +16.2% YTD (up for the week +1.0%)
- Russell 2000 +11.9% YTD (up for the week +1.9%)
(Excerpts from Briefing.com)
Dollar: Index Remains Pressured
- The U.S. Dollar Index was down 0.5% at 92.76, tracking its third consecutive weekly decline. The Index, which began the week with a Monday spike, is on course to surrender 1.0% for the week, returning to levels from the last week of September. Today’s decline in the greenback developed in early-morning action, pressuring the index to a session low around 11:00 ET. The euro has enjoyed a strong day amid reports pointing to growing pressure on SPD and its leader Martin Shulz to reconsider forming a ruling coalition with Angela Merkel’s CDU/CSU in order to avoid a snap election.
Bonds: Yield Curve Flattens More
- The U.S. Treasury market ended the sleepy Friday session on a lower note, but intraday movement was essentially non-existent. Treasuries began the day with slim losses and while the market appeared to gear up for a rebound, the subsequent buying was not strong enough to pressure yields below levels from Wednesday. Instead, the market inched to a fresh session low roughly two hours into the trading day, maintaining an extremely narrow range into the close. The 2s10s spread ended the week at 60 bps, down from 63 bps one week ago while the 2s30s spread finished the week at 102 bps, five basis points tighter than one week ago.
- 2-yr: up 2bps to 1.74% from 1.72% the previous week
- 5-yr: up 1bps at 2.07% from 2.06%
- 10-yr: down 1bps to 2.34% from 2.35%
- 30-yr: down 3bps to 2.76% from 2.79%
Commodities: Crude Rebounds to April 2015 Level
Gold and Silver fell and Copper bounced. Baker Hughes rig count data was provided on Wednesday because of the holiday. It showed the total U.S. rig count increased by 8 to 923 following last week’s increase of 8.
- December Crude Oil futures: $58.95/barrel from $56.71/barrel the previous week
- December gold: $1287.70/oz from $1296.30/oz
- December silver: $17.00/oz from $17.34/oz
- December copper: $3.17/lb from $3.07/lb
Agriculture: Grains Bounce Back
- December corn closed at $3.45/bushel from $3.42/bushel the previous week
- December wheat closed at $4.38/bushel from $4.25/bushel
- December soybeans closed at $9.98/bushel from $9.75/bushel
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THE WEEK AHEAD
Week 48 is the last trading week for November and the start of the Holiday Season.
Monday 27 November to 01 December (Week 48)
- The last week of November 2017 is a rather bullish week.
- The last trading day of November can be quite bearish but has been up on the S&P 6 of the last 10.
- The first trading day in December has been up on NASDAQ 20 of the last 29 but down 6 of the last 10.
The forty-eighth week of 2017 (wk48) is bullish over all timeframes on our seasonal models on the SPY and DIA.
The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 48;
- DOW, NASDAQ and S&P500 are bullish from Monday to Wednesday.
- NASDAQ and S&P are extremely bullish on Wednesday.
- DOW becomes mildly bearish on Thursday and Friday.
- NASDAQ and S&P turn bearish on Thursday and become bullish again on Friday.
Key Economic Dates
In the coming week, the most important data for the US include the 2nd estimate of GDP growth, ISM Manufacturing PMI, personal spending and new home sales. Investors will also be looking for the BoE monetary indicators; Euro Area inflation; Japan inflation and unemployment; China PMIs; and GDP growth for Canada, India and Brazil.
Mon 27 November
- US – New Home Sales, FOMC Member Dudley Speaks
Tue 28 November
- UK – BOE Financial Stability Report, Bank Stress Test Results
- EU – M3 Money Supply y/y
- US – Consumer Confidence, FOMC Member Harker Speaks
Wed 29 November
- EU – German Prelim CPI m/m
- UK – Net Lending to Individuals m/m
- US – Crude Oil Inventories, Prelim GDP q/q, FOMC Member Dudley Speaks, Fed Chair Yellen Testifies
Thu 30 November
- EU – German Retails Sales m/m, Eurozone CPI and For CPI Flash Estimate
- US – Initial Claims, Core PCE Price Index m/m, Personal Spending m/m, Chicago PMI, FOMC Member Kaplan Speaks
- China – Caixin Manufacturing PMI
Fri 01 December
- UK – Manufacturing PMI
- US – FOMC Member Kaplan Speaks, ISM Manufacturing PMI, FOMC Member Harker Speaks
SUMMARY
As we go into the final month of the year which is traditionally a bullish period, the current bull run is starting to look very tired. The signs that warned us late in 2006 are repeating themselves again like an instant replay; tight yield spreads, parabolic indices, overvalued securities, crude running up, etc … way too many to be a coincidence. The only difference is that the Fed Fund Rate is closer to the lows at 1.25% than as it was high at 5.25% in 2006.
I am sticking to keeping my trades quick and hedged as the economic signals hint at more upside. This week’s Fed Speak and Preliminary GDP will tell us more in terms of what to expect going into the final month of 2017.
On a side note, I have been saying at all my talks this year that I expected Crude to break above $60p/b by end October – early November based on a old oil trader’s practice; the alignment of planets. In this case, the reference was to Earth, Mars and Saturn. I totally misread some of the material and got my dates off by a month.
You can read up on this stuff here:
The most interesting read is at the bottom of the report: The (Mercury) retrograde does not start until Dec. 3rd and everyone knows about Mercury retrograde and we will write more about it next week. Shares of stock are ruled by Mercury and also stock brokers so we think that end of the year profit-taking will hit the stock market with this conjunction and retrograde action.
So it looks like the break above $60 on Crude is likely to be in the coming week or early December. How I got that is a discussion for another posting.
Happy Hunting!
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