Weekly Market Update – 26 February 2018 BMO

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Week in Review: Eking Out a Last-Minute Win

Equities advanced this week thanks to a last-minute rally on Friday that reclaimed losses registered on Tuesday and Wednesday. The S&P 500 and the Dow Jones Industrial Average added around 0.5% apiece, while the tech-heavy Nasdaq Composite outperformed, jumping 1.4%. Markets were closed on Monday (February 19) in celebration of Presidents’ Day.

The Wednesday release of the minutes from the January FOMC meeting was perhaps the most notable event of an otherwise relatively quiet week. The minutes were somewhat outdated considering the last FOMC meeting took place before a host of events that may have altered the Fed’s perspective a bit, including the release of the CPI and PPI reports for January, the passing of a two-year budget deal in Congress that will increase spending by approximately $420 billion, and a sharp sell off on Wall Street.

Nonetheless, the minutes did reveal that almost all FOMC members expect inflation to increase in 2018 and that a majority of members believe a stronger outlook for economic growth raises the “likelihood that further gradual policy firming would be appropriate.”

The yield on the benchmark 10-yr Treasury note ticked up to a four-year high on Wednesday following the minutes, closing at 2.94%, but slipped back to 2.87% by Friday’s close–finishing flat for the week. Meanwhile, the 2-yr yield jumped to 2.26% following the minutes, its highest level since September 2008, but finished Friday at 2.24%–locking in a weekly gain of five basis points. In addition to the minutes, the 2-yr yield was also bolstered by a relatively weak 2-yr note auction on Tuesday.

In corporate news, shares of Wal-Mart (WMT) tumbled 10.2% on Tuesday after the world’s largest retailer reported lower-than-expected earnings for the fourth quarter and issued disappointing profit guidance for fiscal year 2019. Conversely, Hewlett Packard Enterprise (HPE) rallied 10.5% to a new all-time high on Friday after reporting better-than-expected earnings and revenues and issuing upbeat profit guidance. HPE also announced a plan to return $7 billion to shareholders via share repurchases and a dividend increase.

As for the sector standings, seven of eleven S&P 500 groups finished the week in positive territory. The technology (+1.9%), materials (+1.3%), and energy (+1.0%) groups finished at the top of the leaderboard, while the consumer staples (-2.3%) and utilities (-2.4%) sectors finished at the bottom.

The S&P 500’s 50-day simple moving average (2731) proved to be an area of resistance for the benchmark index on several occasions this week, the most notable of which was on Thursday when the S&P 500 retraced the entirety of a 1.2% intraday gain after hitting the key technical level. However, the S&P 500 finally managed to climb above its 50-day simple moving average on Friday, which helped fuel further buying to bring the index into positive territory for the week.

Following this week’s trading, the S&P 500 is down 4.4% from the record high it hit on January 26.

(Excerpts from Briefing.com)

Friday Update: Friday Rally Leaves Stocks Higher for the Week

Stocks rallied on Friday, turning what was a disappointing week into a modest success. The Nasdaq Composite led the charge, adding 1.8%, while the S&P 500 and the Dow Jones Industrial Average climbed 1.6% and 1.4%, respectively. For the week, the three major averages finished with gains between 0.4% and 1.4%.

After trending sideways through the first hour of trading, the major averages began building on their opening gains, which were around 0.5% apiece, and nearly doubled them by midday. The rally then paused for about two hours as the S&P 500 wrestled with its 50-day simple moving average (2731), which proved to be an area of resistance on Thursday. The benchmark index eventually jumped above the key technical level and continued climbing–alongside the Dow and the Nasdaq–until the closing bell.

Friday’s rally was broad, with 11 of 11 S&P 500 sectors finishing in positive territory.

The rate-sensitive utilities sector was the top-performing group, adding 2.7%, as Treasury yields slipped across the curve; the yield on the 2-yr note declined two basis points to 2.24%, while the yield on the benchmark 10-yr note tumbled five basis points to 2.87%. The top-weighted technology group (+2.2%) and the energy group (+2.2%) also outperformed on Friday.

Within the tech space, Hewlett Packard Enterprise (HPE 18.14, +1.73) and HP (HPQ 22.13, +0.74) rallied 10.5% and 3.5%, respectively, after the companies beat both earnings and revenue estimates, in addition to issuing upbeat profit guidance. HPE shares finished at a fresh all-time high.

As for energy, its outperformance was helped by an increase in the price of crude oil; WTI crude futures jumped 1.3% to $63.56/bbl, hitting a two-week high.

On the downside, the industrial sector (+0.8%) underperformed as Dow components Boeing (BA 356.66, +0.74), General Electric (GE 14.49, -0.01), and 3M (MMM 237.02, +1.02) finished the session little changed. The lightly-weighted telecom services sector (+0.8%) also struggled to keep pace with the broader market.

In corporate news, Nordstrom (JWN 53.56, +3.29) rallied 6.5% following reports that the Nordstrom family hopes to seal a deal to take the high-end retailer private before next Thursday, when the company is due to report its results for the fourth quarter. Meanwhile, General Mills (GIS 52.98, -1.97) declined 3.6% after agreeing to acquire Blue Buffalo (BUFF 40.00, +5.88) for $40 per share in cash.

Investors did not receive any economic data on Friday, but the Fed did release its Monetary Policy Report, which is expected to be a blueprint for new Fed Chair Jerome Powell’s testimony before Congress next week. The Fed stayed on message in the report, calling for a path of gradual rate hikes and noting that it expects inflation to creep closer to the 2.0% year-over-year target as economic activity continues to expand at a moderate pace.

Market Internals – Friday 23 Feb – AMC

Dollar: Dollar Fights to Defend Overnight Gain

The U.S. Dollar Index is up 0.2% at 89.88, looking to add 0.9% for the week. While the Index is set to end the week higher, it has failed to reclaim its loss from two weeks ago. The Index is trying to rebound from levels not seen in more than three years, but it has run into resistance just below its February high. The dollar followed yesterday’s stumble with an overnight rally, but it has struggled to hold that gain through European and U.S. trade.

Bonds: Abbreviated Week Ends on Higher Note

U.S. Treasuries ended Friday on a higher note, which helped most tenors turn positive for the week. The final session of the week was free of economic data and none of today’s four Fed speakers made market-moving remarks. However, it is worth pointing out that New York Fed President and FOMC Vice Chair William Dudley said the Fed should stop shrinking its balance sheet when it reaches about $2.90 trillion. The Fed’s balance sheet was below $1 trillion before the financial crisis. The Treasury complex started the day in positive territory and continued its push into the afternoon, squeezing out some short positions that were established earlier this week when yields reached fresh cycle highs. The daylong advance helped 2s, 5s, and 10s turn positive for the week while the long bond logged its seventh weekly decline in the past ten weeks.

The long end of the yield curve steepend as the belly of the curve fell. The spread between the 5s10s remained unchanged at 25bps for a third week while the 10s30s spread widened to 29bps from 26bps the previous week.

Crude: WTI recovers, closes higher above $63.50

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.6 mln barrels from the previous week. At 420.5 mln barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 0.3 mln barrels last week, and are in the upper half of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 2.4 mln barrels last week and are in the middle of the average range for this time of year. Propane/propylene inventories decreased by 2.5 mln barrels last week, and are in the lower half of the average range. Total commercial petroleum inventories decreased by 7.9 mln barrels last week.

Baker Hughes total U.S. rig count increased by 3 to 978 after being flat last week.

Metals: Falling back again

Agriculture: Corn stalls, Wheat strengthens, Soy breaks above $10.00

Commodities measured by the Bloomberg Commodity Index closed at 88.6922, higher than 88.2043 previous week.


March is the last month in Quarter One and the penultimate month of the “best six months” on the DOW and S&P500. March is known for its good start, mid-month strength and end month weakness. March 2018 has 21 trading sessions and one public holiday.


The coming week09 is the last week of February and the start of March.

Monday 26 February to Friday 02 March (Week 09)

The ninth week of 2018 (wk09) is supposed to be bullish over the 5 and 10 year averages but is unreliably bearish on the 15 year average on the SPY and DIA according to our seasonal models.

The daily averages for the benchmark indices (based on 21 years) for week 09;

Key Economic Dates

Next week, the US will publish the second estimate of GDP growth, durable goods, ISM Manufacturing PMI, new and pending home sales, personal spending and income. Elsewhere, important releases include the UK PMIs; Japan industrial output; and China PMIs. Canada, India, Brazil and Hong Kong will report GDP growth for Q4.

Mon 26 February

Tue 27 February

Wed 28 February

Thu 01 March

Fri 02 March


Fed Monetary Policy Report Excerpts – Fed Message Stays on Point Under Powell

U.S. economic strength will warrant further gradual hikes; Most expect inflation to move closer to 2% tgt; Labor market near or a little beyond full employment; vulnerabilities are moderate and balanced on risk

From Briefing.com


As of Friday’s close, the benchmarks are barely above the year’s open with only the NASDAQ managing more than a 1% gain year-to-date. The three benchmarks are also well above their respective December Lows as we go into the final month of the quarter to determine if the DL indicator closes in convergence with the January Barometer.

With the market behaving like it is “back to normal”, I am likely to be looking for upside trades in the coming weeks and probably resume my usual portfolios of seasonal trades.

Happy Hunting!


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