Weekly Market Recap
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Weekly Market Recap October 23, 2017 Last Week: • The Dow Jones Industrial Average took to the skies again, gaining +2.0% and finishing above 23,000 after eclipsing that level for the first time midweek rd o The Dow posted its 53 record close for the year on Friday o There were 23 stocks advancing compared to 7 decliners for the week o Watson must have found the secret sauce, as IBM paced the Dow with a double digit gain of 10.2% for the week … other top performers were United Health, Travelers, Johnson & Johnson and Nike o Six of seven decliners slid one percent or less, but the exception was Procter & Gamble, which took a (-5.1%) tumble o Among Dow industry groups, the top five all picked up +5.0% or more, and included Health Care Providers, Industrial Suppliers, Mortgage Finance, Footwear and Computer Services o Down over (-4.0%) for the week Nondurable Household Products and Oil Equipment and Services, the latter group being down over (-25.0%) year to date • Dow Transports got off to a slower start, gaining only +0.4%, while Dow Utilities turned on the power, gaining +1.6% • The S&P 500 had a very solid week, up +0.9% o The Index has finished up on 12 of 15 trading days in October o The Financial and Health Care sectors led the charge, supported by Utilities and Industrials o Consumer Staples dipped more than one percent for the week, with Real Estate and Energy filling out the sectors in the red for the week • The S&P Mid-Cap and Small-Cap indices were up nicely, rising +0.9% and +0.6% • NASDAQ’s Composite registered another small advance, up 0.4% to a new record Source: Strategas 1 Weekly Market Recap October 23, 2017 • The VIX volatility index nearly stayed in double digits after spending most of the week there, closing at 9.97 • U.S. 10-year Treasury yields moved higher for the fifth week in six, gaining 11 basis points to 2.39% • Gold fell back about $25 to $1,276/ounce • Crude oil kept moving higher, up over 1% to $52.09/barrel • The US Dollar Index resumed its recent strengthening trend, finishing at 93.66 • Foreign markets didn’t understand the excitement experienced in the US markets o Asian markets were more to the downside, with Shanghai (-0.4%) and Shenzhen (-0.6%) joined by Bombay (-0.1%) while Hong Kong was flat . Tokyo marched higher by +1.4% and Sydney gained +1.6% o The STOXX Europe 600 also saw red (-0.3%) as Paris and London saw small declines while Frankfurt was flat . Athens was noticeable to the downside (-1.6%) for the week • Bitcoin surged to $6,000 for the first time Friday, bringing its year-to-date appreciation to more than 500% o Eighty four crypto currency hedge funds have opened so far in 2017 (there are now 110 such funds w/~$2.2B in AUM), and the total value of all cryptocurrencies in circulation has surged ten-fold this year to more than $170B, according to JP Morgan • The United States posted its largest federal budget deficit since 2013 2 Weekly Market Recap October 23, 2017 • Venezuela’s government and its state-run oil company missed a series of debt payments totaling $349 million. Hard to believe, but the outlook is worse: The country has $2 billion due to bondholders later this month, while its central bank is down to $9.9 billion of reserves • China’s President provided an updated five-year plan, and the chart below shows the environment continues to get more of a star billing than the economy o China’s GDP grew 6.8% in 3Q according to published reports, as expected • It appears three strikes and you’re out only applies in baseball, where the LA Dodgers and Houston Astros won their divisions and prepare to start the World Series o President Trump’s third crack at a travel ban was blocked again, this time by a Hawaii judge … we don’t believe this game is over yet • The heads of the U.S., Japanese and European central banks said continued weak inflation could slow their respective efforts to roll back post-crisis economic stimulus measures. Federal Reserve Chair Janet Yellen called inflation the "biggest surprise in the U.S. economy this year" but said the Fed expects to keep gradually raising short-term interest rates. Barron’s says Fed Funds Futures imply an 83.6% chance of a further quarter-percentage point hike at the FOMC’s Dec 12-13 meeting o Inflation in the UK hit 3% year over year • President Trump had Senate Majority Leader McConnell join him at the White House, where they acted like old friends at a news conference and reiterated their plan to pass tax legislation, but waffled a bit on the time line o On Thursday the GOP passed a budget blueprint, opening the door for the legislation necessary to craft tax reform 3 Weekly Market Recap October 23, 2017 o Over the weekend House Speaker Paul Ryan indicated that a fourth bracket will be part of the tax legislation o Citing betting market PredictIt, Barron’s indicates there’s only a 29% chance personal income tax cuts are approved • Following his interview of current Chair Janet Yellen, President Trump narrowed the field of potential Fed Chairpersons to five: Yellen, Warsh, Powell, Taylor and Cohn, with an announcement indicated by November 3rd o There are two positions to fill, with the Chairperson’s term expiring in February, and the current Vice Chair Stanley Fischer having announced his resignation Source: Strategas • Attempts to renegotiate NAFTA appear to have been extended into 2018, according to U.S. Trade Representative Robert Lighthizer • Import Prices rose +0.7% over the prior month and are now up +2.7% year over year • Industrial Production edged up +0.3% in September, matching consensus forecasts, but August got revised upward (from an originally reported -0.9%to a revised -0.7%) while July got revised down (to -0.1% from +0.4%). Summing things up nicely, Ian Shepherdson of Pantheon Economics said, “Data for the past two months have been distorted by the hurricanes and therefore likely tell us nothing about the underlying trends” 4 Weekly Market Recap October 23, 2017 • Housing Starts and Building Permits took a hit from the hurricanes, as each declined over 4% … year over year housing starts are up +6.1% • The Philadelphia Fed manufacturing index surged to 27.9, its strongest reading since May and well above the 20.2 consensus forecast • The NAHB’s Home Builder sentiment index rose four points to 68, its highest level since May • Existing Home Sales increased 0.7%, ahead of expectations • Weekly jobless claims fell -22,000 to 222,000, their lowest level since March 1973 5 Weekly Market Recap October 23, 2017 • In corporate news: o Airbus acquired a 50.01% stake in the C-series jet business of Bombardier o Impax Laboratories and Amneal Pharmaceuticals announced a merger agreement which would create the fifth largest generic-drug company o American Express CEO Kenneth Chenault announced his plans to give up the helm at the financial icon o New CEO John Flannery at GE seems to be attacking costs first, grounding the company’s fleet of planes and likely cutting thousands of corporate jobs o Next-generation database provider MongoDB came public Thursday and its stock jumped 35% in the opening minute of trading o Tesla received approval to build a factory in China o Gilead Sciences won approval from the FDA of another breakthrough cancer drug, Yescarta, part of its recent acquisition of Kite Pharma • George Soros turned over $18 billion to his Open Society Foundations, a philanthropic group second only to the Bill and Melinda Gates Foundation This Week: • Futures indicate US markets opening higher • Asian stocks were mostly flat, with the Hong Kong market seeing declines of (-0.6%) o Japan’s Nikkei was up +1.1% as the current government won called elections by a sizable margin, paving the way for further economic and constitutional actions by Prime Minister Shinzo Abe • European markets are trading higher, led by Paris and Frankfurt up just over one half of a percent • The prime minister from Singapore visits the White House on Monday o Secretary of State Tillerson heads to India on Wednesday, while Russian President Vladimir Putin holds a meeting with Germany o Treasury Secretary Mnuchin visits the Middle East on Thursday • The European Central Bank concludes its meeting on Thursday with a press conference, with color on stimulus withdrawal anticipated • Economic data is light: o Wednesday: Durable Goods and New Home Sales o Friday: The first 3Q GDP reading comes out, expected to be up 2.9% . It’s interesting to see the Atlanta Fed GDPNow forecasting tool is calling for 2.7% 3Q GDP growth while the New York Fed Nowcast tool sees just 6 Weekly Market Recap October 23, 2017 1.7% 3Q GDP growth. One of the few things we’re reasonably certain is they both can’t be right! • Earnings season continues with a flurry: o Monday: American Campus Communities, Core Labs, Halliburton, Hasbro, Illinois Tool Works, Kimberly Clark, Owens-Illinois, Seagate and State Street o Tuesday: 3M, Advance Micro Devices, Akamai, Allegheny Technologies, Ameriprise, AT&T, Biogen, Capital One, Caterpillar, Centene, Chipotle, CIT Group, Corning, Discover Financial, Express Scripts, Fifth Third, GM, Highwoods, Infosys, JetBlue, Juniper, Eli Lilly, Lockheed Martin, Masco, McDonalds, Nabors, Novartis, Paccar, Pentair, Pulte, Regions Financial, Ryder, Sherwin Williams, Sonic Automotive, TD Ameritrade, Texas Instruments, Total System Services, Waters, Weingarten Realty and XL Group o Wednesday: AFLAC, Alaska Air, Alliance Bernstein, Amgen, Anthem, AVX, Baxter, Boeing, Brinks, Buffalo Wild Wings, Citrix, Coca Cola, CoStar, Digital Realty, Ethan Allen,