Weekly Market Update – 07 May 2018 BMO

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WEEK IN REVIEW – 30 April to 4 May 2018: Mixed Week Ends On A Positive Note

Equity indices finished the week mixed, with the S&P 500 and the Dow losing 0.2% apiece and the tech-heavy Nasdaq adding 1.3%. Investors digested the latest policy directive from the Fed, the Employment Situation report for April, and another big batch of corporate earnings — including Apple’s (AAPL) quarterly report.

The stock market kicked off the week on a lower note Monday, with telecoms leading the retreat after Sprint (S) and T-Mobile US (TMUS) agreed to an all-stock merger over the weekend. The deal, which capped four years of on-again, off-again talks, is aimed at creating a larger carrier to better compete with wireless giants AT&T (T) and Verizon (VZ).

Wall Street bounced back a bit on Tuesday, led by technology shares, which rallied ahead of Apple’s quarterly earnings release. Apple’s results crossed the wires on Tuesday evening, showing a better-than-expected bottom line. In addition, the tech giant raised its profit guidance for the current quarter, increased its share repurchase program by $100 billion, and raised its dividend by 16%.

Apple shares rallied more than 4.0% on Wednesday in reaction to the upbeat results/guidance, but the broader market struggled — a somewhat concerning signal considering Apple was among the top performers during last year’s rally and considering it’s the largest component in the S&P 500 by market cap.

The Fed’s latest policy directive was released on Wednesday afternoon, but contained few surprises. Fed officials unanimously decided to leave the federal funds target range unchanged at 1.50% to 1.75%, as expected. In addition, officials laid the groundwork for a rate hike at the June meeting and left the door open for another one to two hikes before the end of the year.

Equity indices shot lower at the start of Thursday’s session, with the S&P 500 busting through its 200-day moving average, but eventually rebounded to finish little changed. Tesla(TSLA) received a lot of attention in the media on Thursday after its CEO, Elon Musk, unconventionally dismissed analysts’ questions in the company’s earnings call, calling them “boring.”

The Employment Situation report for April crossed the wires on Friday morning, showing a lower-than-expected increase in nonfarm payrolls (164K actual vs 190K consensus), an in-line reading for average hourly earnings (+0.2% actual/Briefing.com consensus), and a lower-than-expected unemployment rate (3.9% actual vs 4.0% consensus).

The key takeaway from the report is that there weren’t a lot of big surprises in it, which effectively means the Fed is apt to stay on course for at least two more rate hikes this year.

Apple reemerged in the headlines on Friday after Warren Buffet revealed his company, Berkshire Hathaway (BRK.B), bought an additional 75 million shares of Apple in the first quarter. Apple jumped 3.9% in reaction, leading a broad-based rally that made a significant dent in the S&P 500’s weekly decline. The tech group was the top-performing sector on Friday, extending its weekly gain to 3.2%.

The technology sector closed at the top of the sector standings by a decent margin, while health care (-3.0%), telecom services (-4.6%), and consumer staples (-2.0%) finished at the back of the pack. In total, seven S&P 500 sectors settled the week in negative territory, while four groups settled in the green.

(Excerpts from Briefing.com)

Friday Update: S&P Nearly Recoups Weekly Decline In Friday Rally

U.S. equities rallied on Friday following the publication of the monthly jobs report, with technology names leading the charge — including Apple (AAPL), which rallied 3.9% after Warren Buffet revealed his company, Berkshire Hathaway (BRK.B), bought an additional 75 million shares of Apple in the first quarter. The Russell 2000 jumped 1.2%, the S&P 500 advanced 1.3%, the Dow climbed 1.4%, and the Nasdaq rose 1.7%.

Equity indices opened the session modestly lower, but things turned around quickly after the S&P 500 found support at its 200-day moving average. Stocks climbed steadily into the late afternoon, finishing near their best marks of the day. Friday’s gains brought the S&P 500 and the Dow within 0.2% of their flat lines for the week and left the Nasdaq with a weekly gain of 1.3%.

The Employment Situation report for April was released on Friday morning, but didn’t contain many surprises, reinforcing the notion that the Fed is on course for at least two more rate hikes this year. The report showed a lower-than-expected increase in nonfarm payrolls (164K actual vs 190K consensus), an in-line reading for average hourly earnings (+0.2% actual), and a lower-than-expected unemployment rate (3.9% actual vs 4.0% consensus).

Gains were broad-based on Friday, with all 11 S&P sectors settling in the green. The top-weighted technology sector (+2.0%) closed at the top of the day’s leaderboard, but seven groups in total finished with gains of at least 1.0%. The energy and utilities sectors finished at the back of the pack, but still added 0.4%-0.5% apiece.

Several well-known consumer names rallied after reporting better-than-expected quarterly earnings and revenues, including Pandora (P), GoPro (GPRO), and Shake Shack (SHAK), which spiked between 9.9% and 19.8%, and CBS (CBS), which climbed 9.1%. However, V.F. Corp (VFC) — which owns brands like The North Face, Lee, Wrangler, JanSport, and Dickies — declined 2.8% despite also beating top and bottom line estimates.

U.S. Treasuries saw some intraday movement on Friday, but ended mostly flat, with the yield on the benchmark 10-yr Treasury note closing unchanged at 2.94%. Meanwhile, WTI crude futures jumped 1.9% to $69.72/bbl, their highest close since November 2014, and the U.S. Dollar Index climbed 0.2% to 92.45 – a new 2018 high.

In geopolitics, two days of trade negotiations between the U.S. and China ended without a deal, as expected, but the two sides did agree to keep talking.

Market Internals – Friday 04 May

Dollar: Dollar Index Logs Third Consecutive Weekly Gain

The U.S. Dollar Index was up 0.2% at 92.57, hovering in the middle of Friday’s trading range. The greenback briefly overtook yesterday’s session high in immediate response to the April Employment Situation report (actual 164K; consensus 190K), which underwhelmed on all fronts. The greenback retraced its post-data rally in midday action, returning to levels from the early morning. The Index will record its third consecutive weekly gain, having climbed 3.1% during that stretch.

Bonds: Week Ends on Quiet Note

U.S. Treasuries saw some intraday movement on Friday, but ended mostly flat. The Treasury market started the day with modest gains that were briefly extended after the release of a weaker than expected Employment Situation report for April (actual 164K; Briefing.com consensus 190K). However, the early rally reversed just 25 minutes after the cash open. Treasuries dipped into negative territory in midday action, but reclaimed those slim losses ahead of the close.

The yield curve flattened for a second week with the 2-year maturity rising against the belly of the curve while the 30-year yield dropped 1 basis point. The spread between the 5s10s remained at 16bps from 16bps for the third time. The 10s30s widened slightly to 18bps from 17bps the previous week. 

 Commodities 

The Bloomberg Commodity Index closed at 89.67, higher than 89.40 the previous week.

Crude: WTI closes above $69, Brent is resisted at $75.  

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.2 mln barrels from the previous week. At 436.0 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 1.2 mln barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 3.9 mln barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories increased by 0.7 mln barrels last week, and are in the lower half of the average range. Total commercial petroleum inventories increased by 5.4 mln barrels last week.

Natural Gas inventory showed a build of 62 bcf vs a draw of 18 bcf in the prior week- nat gas prices fall to a new LoD : Working gas in storage was 1,343 Bcf as of Friday, April 27, 2018, according to EIA estimates. This represents a net increase of 62 Bcf from the previous week. Stocks were 903 Bcf less than last year at this time and 534 Bcf below the five-year average of 1,877 Bcf. At 1,343 Bcf, total working gas is within the five-year historical range

Baker Hughes total U.S. rig count increased by 11 to 1032 following last week’s increase of 8.

Metals: Gold continues seasonal decline

Agriculture: Corn, Wheat gain, Soy drops

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THE WEEK AHEAD

The nineteenth week of 2018 (wk19) is going to rock and roll quite a bit:

Key Economic Dates

This coming week, markets will focus on US inflation rate, Michigan consumer sentiment, JOLTs job openings, and producer and foreign trade prices. Elsewhere, the BoE will decide on monetary policy. Other important releases include: UK industrial and construction output and trade balance; China inflation, producer prices and external trade; and Australia business and consumer morale.

Mon 07 May

Tue 08 May

Wed 09 May

Thu 10 May

Fri 11 May

Earnings Season

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SUMMARY

A rock and roll week ahead, DOW and S&P flirting with the 200DSMA, more divergence between the benchmarks, more flattening on the yield curve, the dollar testing a familiar resistance at 92.50 and oil about to break $70 per barrel … The markets feel like they’re really on edge this May. The anticipation of something about to happen is as stifling and volatile as the weather these days. 

Regardless of the seemingly dovish nature of the latest economic numbers, the market seems to know that something else is brewing below the surface. It is making me nervous … or is it a case of paranoia? Whatever it is, I never deny my gut-feel. I am playing it extremely safe this week.

Happy Hunting!

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