Monthly Archives: July 2017

Market Insights 7/31/2017

Stocks Mixed, Tech Still Weak

U.S. stocks finished mixed, as investors weighed relatively upbeat global economic data and continued uncertainty surrounding the tech sector.

Treasury yields and the U.S. dollar were little changed, while crude oil moved above $50/barrel and gold was slightly higher.

The Markets…

The Dow Jones Industrial Average advanced 61 points (0.3%) to 21,891

The S&P 500 Index was 2 points (0.1%) lower at 2,470

The Nasdaq Composite declined 27 points (0.4%) to 6,348

In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.46 to $50.17 per barrel and wholesale gasoline was $0.03 higher at $1.68 per gallon

The Bloomberg gold spot price inched $0.57 higher to $1,270.21 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 92.85

Pending home sales jump, regional manufacturing activity continues to show growth

Pending home sales rose 1.5% month-over-month in June, versus the Bloomberg projection of a 1.0% increase, and following the upwardly revised 0.7% drop registered in May. Compared to last year, sales were 0.7% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which dipped slightly more than expected in June.

The Chicago Purchasing Managers Index declined more than expected but remained at a level depicting expansion (above 50), after falling to 58.9 in July from 65.7 in June, which was the highest since May 2014. Expectations called for a decrease to 60.0.

The Dallas Fed Manufacturing Activity Index surprisingly rose further into a level depicting expansion (a reading above zero). The index improved to 16.8 in July, from 15.0 in June, and compared to the expected decline to 13.0.

Today’s reports begin a week that will see earnings continue to pour in and the economic calendar likely garnering attention given the recent action in bonds and currencies, while the markets appear a little less certain that another Fed rate hike this year is in the offing. Tomorrow, we will get a look at national manufacturing activity in July with the releases of the ISM Manufacturing Index, projected to dip to 56.5 from 57.8 in June, and the final Markit Manufacturing PMI Index, expected to be unrevised at 53.2 and up from June’s 52.0 level. Readings above 50 for both depict expansion. We will also get a look at the health of the consumer and inflation, with the release of June personal income and spending, forecasted to match May’s m/m gains of 0.4% and 0.1%, respectively, while the core PCE Index—a Fed favored gauge of inflation—is projected to remain at a 1.4% year-over-year rate and below the Fed’s 2.0% target. Tomorrow’s monthly U.S. auto sales and construction spending reports are also likely to be in focus.

A solid earnings season should contribute to a continuation of the bull market in stocks, along with economic data that is showing a robust labor market, but few signs of inflation building. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move.

Treasuries were little changed, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were all flat at 1.35%, 2.29% and 2.90%, respectively. Bond yields have shown some relative signs of life after recent pressure though the U.S. dollar remains hampered. The markets continue to grapple with geopolitical and global monetary policy uncertainties, exacerbated by last week’s unchanged Fed monetary policy decision that the decision was unanimous, and the addition of the words “relatively soon” point to a September start point to balance sheet shrinkage, or quantitative tightening (QT). Next up is the Jackson Hole annual conference, at which Yellen will speak, which could provide an opportunity to further steer the consensus around QT’s timing. There is a September timing risk however, given that we could be in the midst of a debt ceiling stand-off, so stay tuned.

Europe mixed, Asia mostly higher following data and amid geopolitical uncertainty

European equities finished mixed in late-day action, with basic materials and oil & gas issues finding some support from upbeat economic data in the region, which followed relatively favorable reports out of Asia. However, the rally in technology issues continued to pause as analysts grapple with valuation concerns as earnings season rolls on. Also, consumer goods stocks were pressured by tobacco companies in the wake of late Friday’s FDA announcement that it plans to crackdown on nicotine levels in cigarettes.

The euro and British pound both moved higher in late-day action versus the U.S. dollar to apply some pressure on the markets, ahead of this week’s monetary policy decision from the Bank of England, while core Eurozone consumer price inflation estimate came in slightly hotter than expected.

Bond yields in the region finished mixed. German retail sales rose more than expected in June, while the Eurozone unemployment rate unexpectedly dipped. Stocks appeared to shrug off flared-up geopolitical concerns in the wake of another missile test by North Korea late last week.

The U.K. FTSE 100 Index ticked 0.1% higher, France’s CAC-40 Index dropped 0.7%, Germany’s DAX Index declined 0.4%, and Spain’s IBEX 35 Index decreased 0.3%, while Italy’s FTSE MIB Index gained 0.3% and Switzerland’s Swiss Market Index advanced 0.4%.

Stocks in Asia finished mostly to the upside, with the markets digesting some economic data, along with the continued global earnings season. Japanese equities declined, with the yen gaining ground to overshadow an upbeat read on the nation’s industrial production, which rebounded more than expected in June. However, stocks traded in mainland China and Hong Kong rallied following upbeat earnings from some key companies in the nation, and as manufacturing and non-manufacturing reports continued to suggest expansion in July, with the latter showing growth in activity out of the key services sector accelerated. Australian securities advanced those traded in India also rose ahead of this week’s monetary policy decisions from the two countries. Meanwhile, South Korean stocks ticked only slightly higher, showing some late-day resiliency in the face of late last week’s missile test from North Korea. South Korean and Indian markets remain near all-time highs.

Market thoughts….

Equity markets continue their record-setting ascent as investors have been encouraged by better-than-expected EPS in Q2, as they have done in each of the last 22 quarters. So what’s next? History hints that while investors shouldn’t worry about the Ides of March, they may be vulnerable to August Angst, since the S&P 500 is entering into a historically challenging two-month stretch, and the market is long overdue for a decline of 5%+. Since we see no recession on the horizon, however, a decline should not lead to devastation.

Since the S&P 500 set five new highs in the past month, it may not be surprising that YTD through July 28, the S&P 1500 high-momentum sub-industries are outpacing the broader benchmark, as they have done in 70% of all calendar years since 1997. CFRA equity analysts offer investment suggestions to serve as proxies for a majority of these high-momentum groups.

Finally, S&P Dow Jones Indices published its annual report showing that S&P 500 foreign revenues slipped in 2016 to 2003 levels and that Asia overtook Europe as the biggest contributor. In addition, it indicated that sector standings remained unchanged with energy and tech in the top spots.

U.S. Market Weekly Summary – Week Ending 07/28/2017

S&P 500 Ends Week Nearly Flat as Telecom Posts Strong Rally, Energy Climbs But Health Care Slips

The Standard & Poor’s 500 index edged down by less than 0.1% this week, ending the week roughly flat with last Friday’s closing level as a sharp advance in the telecommunications sector and gains in sectors including energy nearly offset declines in other sectors including health care.

The market benchmark ended the week at 2,472.10, down slightly from last week’s closing level of 2,472.54. Despite the nearly flat week-over-week comparison, this week’s activity included the recording of another new intraday record high, hit Thursday at 2,484.04.

The telecommunications sector had the largest percentage change of the week and was the best performer, logging a weekly increase of 7.0% as shares of wireless-communications companies Verizon Communications (VZ) and AT&T (T) rallied on their Q2 financial reports. Verizon’s shares jumped 8.4% for the week amid its report of better-than-expected Q2 revenue as well as guidance for 2017 that topped Street estimates. AT&T shares climbed 6.8% this week as its Q2 adjusted EPS and revenue both came in above analysts’ mean estimates.

The energy sector had the next-largest percentage increase of the week, up 1.9%, as crude-oil futures climbed, reaching fresh two-month highs after the latest inventory report from the Energy Information Administration showed US crude stockpiles fell by a larger-than-expected amount last week.

The energy sector’s gainers included Anadarko Petroleum (APC), which also reported Q2 revenue above analysts’ expectations although its adjusted loss for the quarter was wider than the Street’s mean estimate. Anadarko shares rose 5.1% from a week ago. Other advancers included Apache (APA), up 3.2% on the week, and Chesapeake Energy (CHK), which added 7.9%.

The consumer-staples and consumer-discretionary sectors were among the others that rose this week, up 0.4% and 0.3%, respectively. The gainers included Procter & Gamble (PG), which reported fiscal Q4 results above analysts’ expectations while its guidance range for fiscal 2018 adjusted EPS was mostly above the Street’s consensus view. Shares of Procter & Gamble climbed 1.8%.

The health-care sector led to the downside this week amid continued uncertainty over the future of the Affordable Care Act. The sector’s decliners included Envision Healthcare (EVHC), which fell 10% on the week. Universal Health Services (UHS) shares also dropped 10% as the company’s Q2 earnings per share and revenue missed analysts’ expectations and its earnings guidance for the year was cut.

Among the other sectors down this week, the industrial sector dropped 0.6% as some components’ quarterly results disappointed the market. These included Johnson Controls (JCI), whose shares fell 10% this week as the company reported fiscal Q3 earnings per share merely in line with the Street view while its revenue missed analysts’ mean estimate. The company also forecast fiscal 2017 adjusted EPS below analysts’ consensus view.

Market Insights 7/26/2017

Equities Close Mixed

U.S. stocks finished the trading session mixed with the Dow outperforming its peers after the Senate failed another attempt at healthcare reform and Amazon.com posted disappointing profit figures.

Many Dow components reported earnings today, while tobacco stocks were under pressure on the heels of the FDA announcing new plans for cutting the level of nicotine in cigarettes.

Treasuries were higher after an advance read on Q2 GDP narrowly missed forecasts, gold and crude oil prices also advanced and the U.S. dollar traded to the downside.

The Markets…

The Dow Jones Industrial Average (DJIA) advanced 34 points (0.2%) to 21,830

The S&P 500 Index was 3 points (0.1%) lower at 2,472

The Nasdaq Composite declined 8 points (0.1%) to 6,375

In moderate volume, 772 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.67 to $49.71 per barrel and wholesale gasoline was $0.03 higher at $1.65 per gallon

The Bloomberg gold spot price inched $0.61 lower to $1,259.83 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 93.29

Markets were mixed for the week, as the DJIA increased 1.2%, the S&P 500 Index was nearly unchanged and the Nasdaq Composite ticked 0.2% lower

Earnings News

Amazon.com Inc. reported Q2 earnings-per-share (EPS) of $0.40, below the $1.41 FactSet estimate, as revenues grew 25.0% year-over-year (y/y) to $38.0 billion, above the projected $37.2 billion. AMZN issued Q3 revenue guidance that had a midpoint above the Street’s expectations.

Starbucks Corp. posted fiscal Q3 earnings of $0.47 per share, or $0.55 ex-items, versus the expected $0.55, as revenues rose 8.0% to $5.7 billion, below the projected $5.8 billion. Q3 same-store sales increased 4.0% y/y, versus the estimated 4.2% gain, as sales grew 5.0% in the U.S. SBUX issued Q4 EPS guidance that missed forecasts, while it lowered its full-year profit outlook.

Dow member Merck & Co. Inc. announced Q2 EPS of $0.71, or $1.01 ex-items, versus the estimated $0.87, as revenues increased 1.0% y/y to $9.9 billion, north of the $9.8 billion expectation. MRK reaffirmed its full-year EPS outlook, while raising its revenue guidance.

Dow component Exxon Mobil Corp. reported Q2 EPS of $0.78, compared to the expected $0.84, as revenues rose 9.0% y/y to $62.9 billion, versus the projected $61.3 billion.

Dow member Chevron Corp. posted Q2 profits of $0.77 per share, below the estimated $0.86, as revenues rose 17.8% y/y to $34.5 billion, above the forecasted $33.0 billion.

Dow component Intel Corp. announced Q2 EPS of $0.58, or $0.72 ex-items, compared to the forecasted $0.68, as revenues grew 14.0% y/y to $14.8 billion, north of the expected $14.4 billion. INTC issued Q3 guidance that topped projections and raised its full-year outlook.

First look at Q2 shows growth accelerated less than expected

On inflation, the GDP Price Index came in at a 1.0% rise, below expectations of a 1.3% gain and the upwardly revised 2.0% increase seen in Q1, while the core PCE Index, which excludes food and energy, moved 0.9% higher, above expectations of a 0.7% gain, and following the downwardly adjusted 1.8% advance in Q1.

The first look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 2.6%, from the downwardly revised 1.2% expansion in Q1, and below the 2.7% growth forecasted by Bloomberg. Personal consumption gained 2.8%, matching forecasts and following the upwardly adjusted 1.9% increase recorded in Q1.

Along with personal consumption, the accelerated Q2 growth came as the decline in private inventory investment eased and federal government spending turned higher. Also, although nonresidential fixed investment decelerated, investment in equipment jumped, suggesting improved business sentiment may have bolstered capital spending. Residential spending dropped after a strong Q1, reflecting the growing headwinds facing the housing sector. State and local government spending turned lower and Imports—a subtraction to GDP—increased, while growth in exports downshifted.

The Q2 Employment Cost Index rose by 0.5% q/q, south of forecasts of a 0.6% rise, and compared to the 0.8% gain seen in Q1.

The final July University of Michigan Consumer Sentiment Index was revised higher to 93.4 from the preliminary level of 93.1, versus forecasts of 93.2. But the index is down versus June’s level of 95.1. Compared to last month, the expectations component dipped, while the current conditions component improved. The 1-year inflation outlook remained at June’s 2.6% rate, while the 5-10 year forecast ticked higher to 2.6% from 2.5%.

Treasuries traded modestly higher, with the yields on the 2-year and 10-year notes decreasing 2 basis points to 1.35% and 2.29% respectively, while the yield on the 30-year bond dipped 3 bp to 2.89%. Bond yields and the U.S. dollar experienced some choppiness following this week’s unchanged Fed monetary policy decision, the decision was unanimous, and the addition of the words “relatively soon” point to a September start point to balance sheet shrinkage, or quantitative tightening (QT). Next up is the Jackson Hole annual conference, at which Yellen will speak, which could provide an opportunity to further steer the consensus around QT’s timing. There is a September timing risk however, given that we could be in the midst of a debt ceiling stand-off, so stay tuned.

Europe and Asia mostly lower as sentiment hits headwinds

European equities finished mostly lower, with the euro and British pound rising versus the U.S. dollar. Uneasiness seemed to flare up, with the tech sector leading to the downside on the heels of yesterday’s late-day rollover in the U.S. Also, another failed attempt at U.S. healthcare reform exacerbated political uncertainty. The stock markets shrugged off a ten-year high read on Eurozone economic confidence, accelerating Spanish GDP growth and stronger-than-expected German inflation figures. Bond yields in the region rose following the economic data.

The U.K. FTSE 100 Index was down 1.0%, France’s CAC-40 Index fell 1.1%, Germany’s DAX Index decreased 0.4%, Spain’s IBEX 35 Index declined 0.6%, and Italy’s FTSE MIB Index dropped 0.9%, while Switzerland’s Swiss Market Index finished little changed.

Stocks in Asia finished mostly lower amid an apparent flare-up in risk aversion following yesterday’s tech rollover in the U.S. and another failed attempt at healthcare reform late last night in the U.S. The yen gained ground to weigh on Japanese equities. Japan also released national consumer inflation figures for June, which rose in line with forecasts, while its July read on core consumer inflation in Tokyo came in slightly above estimates.

Chinese stocks ticked higher, but shares in Hong Kong declined as the aforementioned headwinds were met with some earnings uneasiness as a plethora of key results loom. Australian securities dropped amid broad-based weakness, led by healthcare. South Korean equities fell and Indian stocks decreased, with both indexes pulling back from recent all-time highs.

An important benefit to global investors is back after 20 years where he notes that the degree to which the world’s stock markets move in sync with each other has fallen to the lowest level in 20 years. Jeff adds that the lower correlation enhances the risk-reducing benefits of diversification, which may be especially good news right now since stocks could be due for a pullback.

Stocks mixed as earnings meet uncertainties

Stocks finished mixed with the busiest week of earnings season lifting the Dow, courtesy of rallies in Boeing Co., Caterpillar Inc. and McDonald’s Corp. following their results. Verizon Communications Inc. also jumped to aid the Dow and telecommunications issues, which led to the upside. However, technology stocks dipped amid some late week volatility as the Street appeared to grapple with valuations following the sector’s sharp rally the past year, while Google’s parent Alphabet Inc’s higher-than-expected traffic acquisition costs fostered margin concerns. However, Facebook Inc managed to rally on its earnings results. Earnings season has been mostly better than expected, as about 73% have topped revenue forecasts and nearly 78% bested earnings expectations of the 287 S&P 500 companies posting results.

Healthcare issues led to the downside amid mixed earnings results, disappointing news from Eli Lilly and Co. and AstraZeneca PLC. regarding potential new drugs, and another failed attempt at healthcare reform. Energy issues were standout gainers this week as crude oil prices extended a recent run on signs of global economic growth and aided by more bullish oil inventory data. Bond rates and the U.S. dollar were in focus, with the Treasury yield curve steepening and the U.S. Dollar Index hitting a low not seen since mid-2016. The moves came on relatively upbeat economic data and after the Fed’s unchanged monetary policy stance.

Next week, earnings will continue to pour in, but the economic calendar will likely garner attention given the recent action in bonds and currencies and as the markets appear a little less certain that another Fed rate hike this year is in the offing. Personal income and spending, the ISM Manufacturing and non-Manufacturing Indexes, trade balance, Markit’s business activity reports and monthly auto sales are notable releases. However, the headliner will likely be Friday’s July non-farm payroll report.

A solid earnings season should contribute to a continuation of the bull market in stocks. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move.

Market Insights 7/27/2017

Late Day Sell-Off

U.S equities finished mixed, as early gains faded amid a rollover in technology stocks and mixed earnings and economic data.

Treasury yields recovered as investors mulled the Fed’s unchanged monetary policy decision yesterday, as well as a divergent durable goods orders report, while the trade deficit and wholesale inventories came in better than expected.

Gold and the U.S. dollar were little changed and crude oil was higher.

The Markets…

The Dow Jones Industrial Average (DJIA) advanced 86 points (0.4%) to 21,797

The S&P 500 Index was 2 points (0.1%) lower at 2,475

The Nasdaq Composite declined 41 points (0.6%) to 6,382

In heavy volume, 926 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.29 to $49.04 per barrel and wholesale gasoline was $0.03 higher at $1.62 per gallon

The Bloomberg gold spot price inched $0.61 lower to $1,259.83 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 93.90

Durable goods orders mixed, jobless claims rise

June preliminary durable goods orders jumped 6.5% month-over-month, compared to the Bloomberg estimate of a 3.9% gain, and May’s 0.8% decrease was revised to a 0.1% dip. Ex-transportation, orders were 0.2% higher m/m, compared to forecasts of a 0.4% gain and versus May’s upwardly revised 0.6% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, dipped 0.1%, versus projections of a 0.3% increase, and the upwardly revised 0.7% rise—from a 0.2% gain—posted in the month prior.

The headlined figure was fueled by the volatile transportation component, with orders for nondefense aircraft and parts surging 131.2% m/m. Orders for autos declined, along with demand for electrical equipment, appliances and components, while the fabricated metal, communications and machinery categories grew. The report was modestly positive as the strong upward revision to the business spending proxy more than offset the dip in June.

Tomorrow, we will get the first look (of three) at Q2 GDP, projected to show growth accelerated to a 2.5% quarter-over-quarter annualized pace from Q1′s 1.4% expansion (economic calendar). Personal consumption is estimated to increase 2.8% after rising 1.1% in Q1. However, core PCE—the Fed’s favored measure of inflation—is projected to slow decisively to a 0.7% pace from Q1′s and the Fed’s target 2.0% rate. However, the data is backward looking and the ascending correlation between stocks and the following year’s real GDP, noting that she believes the stock market is accurate in telling a still-decent story about economic growth and limited recession risk.

Weekly initial jobless claims rose by 10,000 to 244,000 last week, above forecasts of 240,000, with the prior week’s figure being revised higher by 1,000 to 234,000. The four-week moving average was unchanged at 244,000, while continuing claims declined 13,000 to 1,964,000, north of estimates of 1,960,000.

Treasuries were lower, as the yield on the 2-year note was flat at 1.36%, while the yield on the 10-year note rose 3 basis points (bps) to 2.31% and the 30-year bond rate gained 4 bps to 2.93%. Bond yields and the U.S. dollar rebounded on the data and after yesterday’s unchanged policy decision by the Fed. The Fed kept rates unchanged, in a unanimous vote, and the addition of the words “relatively soon” point to a September start point to balance sheet shrinkage, or quantitative tightening (QT). Next up is the Jackson Hole annual conference, at which Yellen will speak, which could provide an opportunity to further steer the consensus around QT’s timing. There is a September timing risk however, given that we could be in the midst of a debt ceiling stand-off, so stay tuned.

In addition to the GDP report, other items on tomorrow’s economic calendar include the Q2 Employment Cost Index, expected to show a 0.6% increase following the 0.8% rise in Q1, as well as the final July University of Michigan Consumer Sentiment Index, forecasted to remain at the preliminary level of 93.1, but down from the 95.1 registered in June.

Europe mixed, Asia higher on earnings and Fed

European equities finished mixed, with the markets digesting the Fed’s unchanged monetary policy stance yesterday and a flood of earnings reports as the season kicks into high gear. The euro and the British pound lost ground on the U.S. dollar to help limit losses, while bond yields in the region finished mostly lower. In economic news, German consumer confidence rose slightly more than expected.

An important benefit to global investors is back after 20 years where experts are noting that the degree to which the world’s stock markets move in sync with each other has fallen to the lowest level in 20 years. The lower correlation enhances the risk-reducing benefits of diversification, which may be especially good news right now since stocks could be due for a pullback.

Stocks in Asia finished mostly higher on the heels of the expected unchanged monetary policy decision in the U.S., while the markets cheered a plethora of upbeat global earnings reports. Japanese equities rose modestly, as gains may have been limited by late-yesterday’s increase in the yen after the U.S. monetary policy decision. Mainland Chinese stocks and those traded in Hong Kong increased, with small-cap stocks rebounding from a recent bout of selling pressure, markets in Australia and South Korea also advanced, while Indian securities finished flat.

A slew of reports from Japan will dominate tomorrow’s international economic calendar, including CPI, jobs data, personal income, the trade balance and retail sales, while other reports from abroad will comprise of PPI from Australia, GDP and CPI from France and Spain, as well as sentiment figures from the Eurozone.

Market Insights 7/26/2017

Stocks Continue Run

U.S. equities finished higher, tacking onto record highs, amid another string of mostly upbeat earnings reports, and after the Fed expectedly held steady in its monetary policy.

Treasury yields fell following the Fed’s decision and the U.S. dollar reversed to the downside, while crude oil prices added to recent gains in the wake of another bullish government oil inventory report.

The Markets...

The Dow Jones Industrial Average advanced 98 points (0.5%) to 21,711

The S&P 500 Index was nearly a point higher at 2,478

The Nasdaq Composite increased 11 points (0.2%) to 6,423

In moderate volume, 826 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.86 to $48.75 per barrel and wholesale gasoline was $0.02 higher at $1.59 per gallon

The Bloomberg gold spot price increased $10.80 to $1,262.61 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 93.50

Fed stands pat, new home sales tick higher

As widely expected, the Federal Open Market Committee (FOMC) made no change to its monetary policy stance following its two-day meeting, noting in its accompanying policy statement that “near-term risks to the economic outlook appear roughly balanced,” and that “household spending and business fixed investment have continued to expand.” In its unanimous decision, the Committee provided little direction of any change to its current outlook for future rate increases, which beforehand showed that members have penciled-in one additional rate hike this year.

Chairwoman Janet Yellen’s dovish tone in her testimony before Congress earlier this month has many market participants hedging their bets on the future path of rate increases. Regarding winding down its balance sheet, the Committee only noted that it would commence such “relatively soon.” No updated economic projections or post-meeting press conference by Chairwoman Janet Yellen were provided after the decision.

Economic uncertainty has confounded the Fed, which may raise the risk of a policy mistake and/or bouts of market volatility, while putting the potential for another rate hike this year into greater doubt. We’re sticking with our forecast for one more hike this year (December) along with the start of a gradual reduction in their balance sheet, believing the latter could come before the former. The long running bull market continues to show remarkable resiliency and we expect that to continue. However, Yellen also bolstered the doves’ case by noting that it is becoming more apparent that the “normal” level of interest rates may be below what it had been historically.

New home sales rose 0.8% month-over-month (m/m) in June to an annual rate of 610,000, below the Bloomberg forecast calling for 615,000 units, and compared to the lower revised 605,000 unit pace in May. The median home price decreased 3.4% y/y to $310,800. New home inventory ticked higher to 5.4 months of supply at the current sales pace. Sales jumped m/m in the West and Midwest but were flat in the Northeast and down in the South. Y/Y, sales are sharply higher in the Northeast and West, while down solidly in the Midwest and slightly higher in the South. New home sales are based on contract signings instead of closings.

The MBA Mortgage Application Index ticked 0.4% higher last week, following the previous week’s 6.3% jump. The modest increase came as a 3.4% rise in the Refinance Index was met with a 2.2% decline for the Purchase Index. The average 30-year mortgage rate declined 5 basis points to 4.17%.

Treasuries turned higher following the Fed decision, as yields on the 2-year and 10-year notes fell 5 bps to 1.36% and 2.29%, respectively, while the 30-year bond rate lost 3 bps to 2.89%. In the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year “lower for longer” theme in the bond market.

Tomorrow’s economic calendar will be fairly busy, beginning with weekly initial jobless claims, predicted to increase to a level of 240,000 from the prior week’s 233,000, followed by the June preliminary durable goods orders report, with economists anticipating a 3.7% m/m rise following the surprising 0.8% decline in May, while ex-transportation, orders are expected to have increased 0.4% m/m, and orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, are seen to have gained 0.3% m/m. Preliminary wholesale inventories for June are also on tap, with forecasts calling for a 0.3% increase, and the advance goods trade balance is expected to show that the deficit shrank in June to $65.5 billion.

Europe and Asia higher ahead of Fed decision

European equities finished higher, with the euro dipping from a recent rally that has been fueled by expectations the European Central Bank is close to starting to talk about tapering its stimulus measures. The markets awaited today’s monetary policy decision in the U.S., while digesting a plethora of earnings reports that have been mostly better than expected. The British pound ticked higher, while the U.K. reported the preliminary look at Q2 GDP growth, showing growth slowed to a 1.7% y/y pace, from the 2.0% expansion posted in Q1. Bond yields in the region mostly nudged lower after a recent rebound.

Stocks in Asia finished mostly higher following the upbeat earnings and economic data in the U.S., bolstered by the energy sector as crude oil prices continue to run, while the markets awaited today’s Fed monetary policy decision. Japanese equities rose, as the yen lost some ground, and stocks in mainland China and Hong Kong ticked higher, while Australia’s markets were sharply higher.

Tomorrow’s economic calendar from abroad will include trade data from Australia, GDP from South Korea, housing prices from the U.K., consumer sentiment from Germany, and employment data from Spain.

Market Insights 7/25/2017

Stocks Advance

U.S. stocks traded higher, though the Nasdaq was relatively flat, courtesy of a plethora of mostly upbeat earnings reports and as an unexpected jump in Consumer Confidence preceded tomorrow’s Fed monetary policy decision.

Treasury yields gained ground as additional reports from the domestic docket showed a rise in home sales and better-than-expected regional manufacturing activity.

The U.S. dollar overcame early losses and gold was lower. Overseas, European markets were broadly higher.

The Markets…

The Dow Jones Industrial Average (DJIA) advanced 100 points (0.5%) to 21,613

The S&P 500 Index was 7 points (0.3%) higher at 2,477

The Nasdaq Composite increased 1 point to 6,412

In moderate to heavy volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil gained $1.55 to $47.89 per barrel and wholesale gasoline was $0.04 higher at $1.57 per gallon

The Bloomberg gold spot price decreased $4.75 to $1,250.55 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 94.10

Consumer Confidence unexpectedly jumps

The Consumer Confidence Index surprisingly improved to a four-month high of 121.1 in July from the downwardly revised 117.3 in June, and compared to the Bloomberg estimate of a 116.5 reading. Both sentiment toward the present situation expectations of business conditions for the next six months increased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 16.1 from the 13.6 level posted in June.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.7% gain in home prices y/y in May, versus expectations of a 5.8% increase. Month-over-month (m/m), home prices were up 0.1% on a seasonally adjusted basis for May, below forecasts of a 0.5% gain.

Treasuries finished lower, with the yield on the 2-year note rising 3 basis points (bps) to 1.39%, while the yields on the 10-year note and the 30-year bond rallied 7 bps to 2.33% and 2.91%, respectively. Bond yields are rebounding and the U.S. dollar remains under pressure amid heightened political uncertainty and mixed economic data, while the markets grapple with global monetary policy uncertainty.

Today’s data helped yields and the U.S. dollar stabilize after a recent bout of pressure. The Fed began its two-day monetary policy meeting but is not expected to make any policy changes tomorrow amid a lack of updated economic projections and a subsequent press conference by Chair Yellen, who recently offered a more dovish tone.

In addition to the aforementioned Fed rate decision, tomorrow the U.S. economic calendar will bring some housing data in the form of new home sales, expected to have increased 0.8% m/m in June after rising 2.9% the month prior, and weekly MBA mortgage applications.

Europe rebounds on data, Asia dips ahead of Fed meeting

European equity markets finished broadly higher, with financials leading to the upside as bond yields in the region recovered. With the Fed set to deliver its monetary policy decision tomorrow, the markets appeared to shrug off the continued strength in the euro versus the U.S. dollar, which has received a boost from expectations the European Central Bank is close to beginning to discuss tapering its stimulus measures.

A variety of upbeat profit reports out of the U.S. may have helped sentiment, along with an unexpected fresh record high in German business confidence for July. The British pound also gained ground on the greenback, while a report showed U.K. business optimism surprisingly improved for this month.

Stocks in Asia finished mostly lower as the markets await tomorrow’s monetary policy meeting conclusion in the U.S., while eyeing the persistent pressure on the dollar and lingering political uncertainty in the world’s largest economy. Also, earnings season was in focus ahead of a plethora of U.S. releases, while traders digested yesterday’s mixed global business activity reports. Japanese equities dipped as the yen recovered losses late in the session.

Mainland Chinese stocks declined and shares trading in Hong Kong finished mostly flat. However, Australian securities advanced amid strength in major sectors of financials, basic materials and health care. South Korean and Indian equities dipped. Both of the countries stock markets retreated modestly from all-time highs.

Market Insights 7/24/2017

Stocks Mixed

U.S. stocks finished the trading session mixed as the busiest week for earnings season is now underway and the markets await Wednesday’s Fed monetary policy decision.

Existing home sales declined a bit more than expected, but business activity reports from Markit suggested continued growth.

Tech shares led advancers, followed by financial stocks as Treasury yields rebounded from a recent bout of weakness. The U.S. dollar and crude oil prices were higher and gold was little changed.

The Markets…

The Dow Jones Industrial Average (DJIA) lost 67 points (0.3%) to 21,513

The S&P 500 Index was 3 points (0.1%) lower at 2,470

The Nasdaq Composite advanced 23 points (0.4%) to 6,411

In moderate volume, 821 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.57 to $46.34 per barrel and wholesale gasoline was unchanged at $1.53 per gallon

The Bloomberg gold spot price increased $0.38 to $1,255.36 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.96

Existing home sales dip slightly more than expected, business activity continues to grow

Existing-home sales in June decreased 1.8% month-over-month to a 5.52 million annual rate compared to the Bloomberg forecast of a decline to a 5.57 million pace, and versus May’s unrevised 5.62 million rate. Sales of single-family homes declined 2.0% m/m and purchases of multi-family structures were little changed, and both were up y/y. The median existing-home price was up 6.5% y/y at $263,800, a new all-time high. Unsold inventory came in at a 4.3-month pace at the current sales rate, down from the 4.6 months rate a year ago. Inventory of homes for sale was down 0.5% m/m, and down 7.1% y/y and has fallen for 25 consecutive months. Sales declined in all regions except for the Midwest. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

Today’s data kicked off a heavy week, which shares the stage with ratcheted-up earnings season and Wednesday’s Fed monetary policy decision. With no updated economic projections and press conference, coupled with the recently perceived change in tone, the Central Bank is not expected to make any policy tweaks.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said the previous three-month lull in contract activity translated to a pullback in existing sales in June. Yun added that demand for buying a home is as strong as it has been since before the Great Recession, though interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that’s straining their budget.

The preliminary Markit U.S. Manufacturing PMI Index rose more than expected to 53.2 in July, from June’s 52.0 level and compared to the expected increase to 52.3. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month held steady at June’s 54.2 level, matching forecasts. Readings above 50 for both reports denotes expansion in activity.

We feel economic uncertainty has confounded the Fed, which may raise the risk of a policy mistake and/or bouts of market volatility, while putting the potential for another rate hike this year into greater doubt. We’re sticking with our forecast for one more hike this year along with the start of a gradual reduction in their balance sheet, believing the latter could come before the former. The long running bull market continues to show remarkable resiliency and we expect that to continue. However, risks have risen and a pullback is likely but solid earnings growth should continue to support stocks.

Treasuries dipped with the yields on the 2-year and 10-year notes rising 2 basis points (bps) to 1.36% and 2.26%, respectively, while the yield on the 30-year bond ticked 3 bps higher to 2.84%.

Bond yields and the U.S. dollar rebounded modestly from pressure as of late on heightened political uncertainty and mixed economic data, while the markets grapple with global monetary policy uncertainty.

Europe and Asia mixed

European equities finished mixed, with the euro retreating somewhat from a recent rally that came in the wake of last week’s unchanged monetary policy decision by the European Central Bank (ECB) with President Mario Draghi noting that talks of tapering its stimulus measures will begin in the fall. The British pound gained ground to weigh on the U.K. markets, along with the IMF’s downwardly revised 2017 growth forecast for the nation, while Brexit negotiations continue to roll on and U.S. political uncertainty festers. Bond yields in the region diverged.

In economic news, Markit’s Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—declined to 55.8 in July, from 56.3 in June and compared to the projected dip to 56.2. However, a reading above 50 denotes expansion. Automakers led to the downside on reports that the European Commission is investigating potential collusion between German automakers on technology amid the lingering diesel emissions scandal.

Stocks in Asia also finished mixed as traders await the increased earnings season this week, which will also bring a monetary policy decision in the U.S. Political uncertainty in the U.S. continued to hamper conviction. Japanese equities declined, but came off the worst levels of the day as the yen gave back some early gains. Shares trading in both mainland China and Hong Kong advanced on the heels of recent upbeat economic data, which helped overshadow lingering concerns about regulatory crackdowns. Weakness in oil & gas and financials weighed on Australian stocks, while equities in India and South Korea ticked higher, with securities in both countries remaining at or near record highs.

A relatively light international economic docket for tomorrow will include consumer confidence from Australia, the Import Price Index and Ifo business climate survey from Germany and business confidence and PPI from France.

U.S. Market Weekly Summary – Week Ending 07/21/2017

S&P 500 Posts 0.5% Weekly Gain, Led by Utilities, Technology, Health Care; Industrials Weigh

The Standard & Poor’s 500 index rose 0.5% over the past five sessions in a week that saw the market benchmark reach a fresh record high, led by the utilities, technology and health-care sectors.

The S&P 500 index closed Friday’s session at 2,472.54, up from 2,459.27. It reached a fresh intra-day high Thursday at 2,477.62.

Utilities posted the largest percentage gain of the week, up 2.6%, as the sector gears up for its earnings reports to start being reported in earnest. Among the utilities companies set to release quarterly results in the next couple weeks, FirstEnergy (FE) shares rose 5.1%, Alliant Energy (LNT) shares added 3.5% and American Water Works (AWK) shares climbed 4.2%.

The technology sector was also strong this week, up 1.1%, as some of its components that already began reporting quarterly earnings were topping analysts’ expectations. Skyworks Solutions (SWKS) shares climbed 3.3% this week as the maker of semiconductor products reported fiscal Q3 results above analysts’ expectations and forecast Q4 results above Street views while also boosting its dividend rate.

Also among the technology sector’s gainers this week, HP (HPQ) shares rose 4.0% amid an investment-rating upgrade to outperform from sector perform from RBC Capital Markets, which also raised its price target on the shares of the provider of personal computers and other devices and technologies “to reflect improved PC/print end-market fundamentals and share gains.” This comes a week after estimates from IDC showed HPQ had the strongest year-over-year growth in personal-computer unit shipments for Q2, up 6.2% to 13.8 million units.

The health-care sector was also up 1.1% this week amid the failure of the latest effort by the Senate to put forward a bill that would repeal and replace the Affordable Care Act. The sector’s gainers included Centene (CNC), which rose 2.3% this week; and UnitedHealth Group (UNH), which added 2.6%.

Also boosting the health-care sector, Vertex Pharmaceuticals (VRTX) shares jumped 25% after the company released encouraging data from phase 1 and phase 2 studies of three different triple-combination regimens in people with cystic fibrosis who have one F508del mutation and one minimal function mutation. Gilead Sciences (GILD) was also strong this week, up 4.5%, as the Food & Drug Administration approved its Vosevi single-tablet regimen for the retreatment of chronic hepatitis C virus infection in adults.

On the downside, the industrial sector had the largest percentage decline for the week, down 1.0%, as some of the sector’s earnings reports missed analysts’ estimates or were considered by investors to be lackluster. Among them, shares of C.H. Robinson Worldwide (CHRW) fell 5.6% this week as the company reported Q2 earnings per share below analysts’ expectations despite its revenue topping the Street view.

Market Insights 7/21/2017

Stocks Drift Lower

U.S. stocks finished the regular trading session well off the lows, but still in negative fashion amid a blank economic calendar, mixed earnings releases and lingering political and monetary policy uncertainty.

The Street welcomed some upbeat results from Dow member Visa and Honeywell, while earnings releases from Dow components Microsoft and GE received some scrutiny.

Treasuries and gold were higher. The U.S. dollar and crude oil prices moved to the downside. Overseas, European equities traded lower as the euro extended its recent rally.

The Markets…

The Dow Jones Industrial Average (DJIA) lost 32 points (0.1%) to 21,580

The S&P 500 Index was 1 point lower at 2,473

The Nasdaq Composite decreased 2 points to 6,388

In moderate volume, 834 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil declined $1.15 to $45.77 per barrel and wholesale gasoline was $0.05 lower at $1.56 per gallon

The Bloomberg gold spot price increased $9.66 to $1,254.15 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 93.94

Markets were mixed for the week, as the DJIA decreased 0.3%, the S&P 500 Index advanced 0.5% and the Nasdaq Composite gained 1.2%

Bond yields continue to slip

Treasuries finished higher and the economic calendar was void of any major releases today. The yield on the 2-year note dipped 1 basis point (bp) to 1.34%, while the yields on the 10-year note and the 30-year bond declined 2 bps to 2.24% and 2.81%, respectively.

Bond yields and the U.S. dollar slipped this week amid heightened political uncertainty and mixed economic data, while the markets grappled with recent dovish commentary from Fed Chair Janet Yellen and some confusion toward the European Central Bank after it left its monetary policy stance unchanged.

The stock market’s major indexes were mixed this week but remain near record highs and the Nasdaq has posted a string of gains lasting two weeks with the technology sector regaining some of its market-leading prowess, while the energy sector slipped as crude oil prices gave back some of a recent run. Healthcare issues finished with a solid weekly gain in the wake of the failed Senate healthcare reform bid and the pullback in bond yields weighed on financials, along with Dow member Goldman Sachs Group Inc’s disappointing earnings report and despite upbeat earnings results from Morgan Stanley. Netflix Inc. was a standout winner after posting blowout results. Thus far, of the 96 companies in the S&P 500 that have reported profit results, about 77% have bested revenue forecasts and approximately 81% have exceeded earnings expectations, per data compiled by Bloomberg.

Next week’s economic calendar will continue to share the stage with ratcheted-up earnings season, but will deliver some key reports that may command attention. Existing and new home sales, Markit’s business activity reports, and Consumer Confidence will precede the mid-week Fed monetary policy decision. However, with no updated economic projections and press conference, coupled with the recently perceived change in tone, the Central Bank is not expected to make any policy changes. The second half of the week will remain robust, with the first look (of three) at Q2 GDP, preliminary durable goods orders and the final University of Michigan Consumer Sentiment Index.

We feel economic uncertainty has confounded the Fed, which may raise the risk of a policy mistake and/or bouts of market volatility, while putting the potential for another rate hike this year into greater doubt. We’re sticking with our forecast for one more hike this year along with the start of a gradual reduction in their balance sheet, believing the latter could come before the former. The long running bull market continues to show remarkable resiliency and we expect that to continue. However, risks have risen and a pullback is likely but solid earnings growth should continue to support stocks.

Europe lower as euro extends rally after ECB decision, Asia mixed amid earnings

European equities finished lower in late-day action, with the euro adding to yesterday’s rally that came as the European Central Bank (ECB) left its monetary policy unchanged and President Mario Draghi noted that talks of tapering its stimulus measures will begin in the fall. However, bond yields remained under pressure as Draghi also appeared to offer a more dovish tone than the markets had anticipated, fostering some confusion. Losses for the telecommunications sector were limited by Vodafone Group PLC. (stronger-than-expected revenues. The British pound was flat versus the greenback.

Stocks in Asia finished mixed as the markets grappled with heightened political uncertainty in the U.S., mixed earnings results and unchanged monetary policy decisions yesterday from the Bank of Japan and European Central Bank, with the latter fostering some confusion in its statement. Japanese equities declined as the yen gained ground and Australian securities fell amid some dovish comments from a Reserve Bank of Australia member and weakness in basic materials issues. Shares trading in Hong Kong and mainland China dipped as traders digested recent upbeat economic data and regulatory concerns persisted.

Indian stocks rose, remaining near all-time highs, and South Korean equities extended a record high winning streak.

International reports of note for next week include: Australia—CPI, PPI and trade data. Japan—Leading Index, jobless rate, household spending, CPI, PPI and retail sales. China—leading indicators and industrial profits. Eurozone—Markit Services and Manufacturing PMIs and consumer confidence and German CPI, import prices and Ifo business climate survey. U.K.—Q2 GDP, Index of Services and consumer confidence.