Weekly Market Recap May 8, 2017

Transcription

1 Last Week: The Dow Jones Industrial Average broke 21,000 last week, the second time this month, rising +0.3% o 18 of 30 Dow stocks advanced for the week o The biggest gain came from Apple, which rose +3.7%. Investors appear to be anticipating the latest version of the iphone (due out this fall), as the company guided to a June quarter revenue outlook below expectations on its conference call last week. o o Other winners were McDonalds, which rose +2.9% on strong earnings; Merck and United Technologies also returned +2.0% or better. IBM was the biggest loser, falling (-3.3%) as legendary investor Warren Buffett disclosed that Berkshire Hathaway sold 30% of its position in the company at higher prices. Disney, Nike, and Caterpillar all fell (-2.0%) or more last week. Dow Jones Components 1-Week Returns AAPL, 3.7% MCD, 2.9% MRK, 2.6% UTX, 2.0% INTC, 1.9% MMM, 1.8% WMT, 1.8% DD, 1.7% VZ, 1.7% GS, 1.4% KO, 1.3% V, 1.0% CSCO, 0.9% GE, 0.8% MSFT, 0.8% XOM, 0.5% BA, 0.1% JNJ, 0.0% JPM, 0.0% HD, -0.2% TRV, -0.3% UNH, -0.4% CVX, -0.9% PG, -1.0% AXP, -1.2% PFE, -1.3% CAT, -2.6% NKE, -2.6% DIS, -3.1% IBM, -3.3% Source: FactSet Dow Transports outperformed the broader Dow, rising +1.0% Dow Utilities underperformed, falling (-0.2%) The S&P 500 rose +0.6% o Financials led the way, with Technology once again a strong performer o Telecom and Energy were the weakest sectors, with the latter likely driven by a lack of oil inventory drawdown Large outperformed small o The S&P 100 rose +0.6%, while the S&P Mid Cap 400 rose 0.3% o Meanwhile the S&P Small Cap 600 fell (-0.3%) 1

2 The tech-laden NASDAQ was again a strong performer, rising +0.9% Growth outperformed value o The Russell 1000 Growth index rose 0.9% last week, while the Russell 1000 Value index rose 0.3% 2.00% U.S. Equity Markets 1-Week Return 1.50% 1.00% 0.50% Russell 1000 Value 0.30% DJ Industrial Average 0.32% S&P % S&P % Russell 1000 Growth 0.87% 0.00% -0.50% -1.00% S&P Small Cap % -1.50% -2.00% Source: FactSet The VIX volatility index pulled back from to (-2.3%), and flirted with values below 10 during the week. Convergex Chief Strategist Nicholas Colas said the VIX below 10 is historically correlated with a one-year pause in S&P 500 returns For the week, 10-year Treasury yields moved up 6 basis points to 2.35% Major European markets continued their strength last week o Italy and France were the strongest, up +4.2% and +3.1%, respectively o U.K. and German markets had the most modest gains, rising +1.5% and +1.3% respectively, albeit these gains were still higher that which we saw in the U.S. 10.0% Europe Equity Markets 1-Week Return 8.0% 6.0% 4.0% 2.0% Dax (Germany) FTSE 100 (United Kingdom) 1.5% 1.3% STOXX Europe 50 (Eurozone) 1.9% SMI (Switzerland) 2.3% CAC 40 (France) 3.1% FTSE MIB (Italy) 4.2% 0.0% -2.0% Source: FactSet 2

3 Asia Pacific markets were more of a mixed bag o China markets were the strongest last week; the Shanghai Composite rose +1.7% o South Korea and Japan were the weakest, amid rising tensions with North Korea The KOSPI Composite fell (-1.6%), while the Nikkei fell (-1.3%) 3.0% Asia Equity Markets 1-Week Return 2.0% 1.0% SSE Composite Index (China) ASX All Ordinaries (Australia) 1.7% 1.4% Hang Seng Index (Hong Kong) S&P BSE SENSEX (India) 0.6% 0.2% 0.0% -1.0% -2.0% -3.0% KOSPI Composite Index (South Korea) -1.6% Nikkei 225 (Japan) -1.3% Source: FactSet Commodities didn t have a great week o Crude oil fell sharply, as WTI Crude fell (-6.3%) to $46/barrel, while Brent Crude fell (-5.7%) to $49/barrel. Prices revisited levels not seen since last November, as the Energy Information Agency reported crude oil supplies declined 900,000 barrels, far less than the 2.25 million barrel drop expected by analysts o Gold lost over $40/ounce to close at $1,227 It was politics as usual last week in Washington o The House passed a second-attempt bill to repeal parts of the Affordable Care Act. Not surprisingly, both Republicans and Democrats claimed victory o Vice President Pence: Welcome to the beginning of the end of Obamacare o Anticipating political ad fodder for future elections, a few Democrats sang lyrics from "Na Na Hey Hey Kiss Him Goodbye" on the House floor during the vote o The measure moves on to the Senate, where it faces an uncertain path o Quote from Republican Senator Lamar Alexander in Politico after the House s ACA repeal measure: We ve got our own ideas and we ll pass our own bill Slightly less dramatic, Congress reached a deal to avert a shutdown through September Many Trump trades are underperforming the market. More specific, baskets of stocks tied to tax reform and deregulation have distinctly underperformed the S&P year-todate, after sky-rocketing in the wake of surprise election results 3

4 Through the end of April, only two sectors were down year-to-date, those being Telecommunications and Energy. Those also happen to be the two worst-performing sectors for both 3- and 5-year returns Auto sales fell for a fourth straight month in April. The annualized rate slowing to 16.9 million units, below the 17.1 million consensus estimate and 17.4 million a year ago ADP s Private Payrolls survey showed a gain of 177,000 jobs in April, roughly matching the 170,000 consensus forecast. But ADP revised lower its March figure to 255,000 from an originally reported 263,000 4

5 Weekly jobless claims fell -19,000 to 238,000 Labor productivity sunk -0.6% in the first quarter of 2017, its worst showing in a year and well below the flat reading expected by consensus forecasts Source: Marketwatch.com Consumer Spending was unchanged in March ISM s gauge of Factory Activity fell to a 4 month low (54.8) in April, well below March s 57.2 reading, but anything above 50.0 signals expansion ISM s Services Index rose to 57.5 in April from 55.2 in March The Atlanta Fed predicts a sharp snapback in second quarter GDP growth, as do consensus expectations. The 4.3% and 2.7% guesses, respectively, compare to the meager 0.7% growth the economy posted in the first quarter of 2017 Source: Atlanta Federal Reserve 5

6 The Federal Reserve suggested it remains on track to raise interest rates further this year. Fed Funds Futures surged and indicate a near 100% likelihood of a rate hike next month Source: Evercore ISI Angie s List agreed to be acquired by IAC for $500 million, roughly a year after rejecting a $512 million takeover offer from IAC. Angie s came public in 2011 and is selling out for roughly half its IPO price of six years ago 6

7 This Week Independent Emmanuel Macron was elected as France s next President by a wider margin than expected. Markets seem to have expected this and therefore the equity market reaction is somewhat muted. He unfortunately inherits 20 consecutive years of deficits Source: Northern Trust Asian markets were higher overnight led by a 2.3% gain in the Nikkei o Overnight we got Chinese import and export data. Both measures rose slightly less than expected, with imports +12% and exports +8% o Tomorrow night we get Chinese consumer and producer prices European markets are mostly lower with the Euro Stoxx 50 down -0.5%. The London FTSE is bucking the trend, up 0.2% o The Bank of England will announce its rate decision at 7am EST Thursday Here at home stocks opened slightly off their Friday all-time high. The S&P is down - 0.1% in early trading o The 10-year Treasury yield is up 2 basis points to 2.37% o West Texas crude is up $0.13/bbl to $46.34 o There was plenty of news this weekend about whether OPEC will extend its production quota into the second half of 2017 and beyond. Saudi s oil minister seems to think it ll happen, saying, Based on consultations that I ve had with participating members, I am confident the agreement will be extended into the second half of the year and possibly beyond. Domestic shale producers must be 7

8 licking their lips as lower overseas production might help boost commodity prices o Gold is up $1.53/ounce to $1, o The dollar is up 0.8% Today and tomorrow offer fantastic opportunities to learn from investing experts. Warren Buffett was on CNBC for three hours this morning, joined by Berkshire colleague Charles Munger and Microsoft founder Bill Gates; not to mention Berkshire s annual meeting this past weekend. Later today hedge fund manager David Einhorn and bond king Jeffrey Gundlach present at the Sohn Investment Conference. Real estate mogul Sam Zell will be on CNBC early tomorrow morning, followed by Goldman Sachs CEO Lloyd Blankfein There were several M&A announcements this morning: o Say it ain t so!!! Apollo is in talks to sell its Chuck E. Cheese chain to Ares Management for $2 billion o Comcast and Charter formed a wireless partnership, spurring speculation that the duo could be looking to bid on a wireless carrier o Sinclair is buying Tribune for $3.9 billion o Coach is buying Kate Spade for $2.4 billion o Private equity group Elliott announced a 15% stake in technology company Gigamon and said it plans to urge the company to review strategic options that include a sale of the company After subpar first quarter GDP growth of just 0.7%, it s encouraging to see Merrill Lynch raising its second quarter forecast from 2.3% to 3.0%. The firm s full year forecast remains 2.1%; essentially factors that dragged down 1Q GDP, such as inventory reductions, are expected to bounce back in 2Q There s really no other way to describe first quarter earnings other than to say they ve been strong. 76% of S&P 500 companies have reported with 77% beating estimates by an average of 6%, according to JPMorgan. Earning are on track to rise +13% for the quarter on 8% sales growth. That would be the fastest growth rate in at least five years 8

9 Source: Oppenheimer And, 37% of companies have raised their top-line forecast, the highest since 4Q13. At the same time, the percentage of companies lowering their outlooks is the lowest since 1Q14 Source: JPMorgan 9

10 Only 5% of the S&P 500 will report this week. Notable companies releasing results include: o Newel Brands (beat and raise), Premier, AES, AMC Entertainment, Tyson Foods, Sysco, and Marriott today o Aramark, AON, Discovery Communications, Steris, Disney, Colony NorthStar, Kar Auction Services, Amdocs, Allergan, Henry Schein, Transdigm, Sealed Air, Perrigo and Priceline tomorrow o Wednesday we hear from Mylan, Cimarex, Whole Foods, Symantec and Vulcan Materials o Thursday follows with reports from Macy s, Kohl s, Nordstrom and CA Inc Wells Fargo will hold an analyst meeting o No notable reports Friday Economic data includes readings on inflation, trade and retail sales: o Nothing today o April NFIB Small Business Optimism and March Wholesale Inventories and Trade Sales tomorrow o April Import Prices (cons 0.2% m/m) and Export Prices (cons 0.2% m/m) Wednesday o Thursday we get April Producer Prices (cons 0.2% m/m, 2.2% y/y; core 0.2% m/m, 1.6% y/y) and weekly Jobless Claims o Friday ends the week with April Consumer Prices (cons 0.2% m/m, 2.3% y/y; core 2.0% y/y), Retails Sales (cons 0.6% m/m) and May University of Michigan Sentiment (cons 97.0) As always, thanks very much for your interest and support. Jeremy Lopez, CFA Director Joshua Haggerty, CFA Executive Director 10

11 Opinions contained in the preceding commentary reflect those of Sterling Capital Management LLC, and not those of BB&T Corporation or its executives. The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They also are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Sterling Capital Management LLC does not assume liability for any loss which may result from the reliance by any person upon any such information or opinions. Investment advisory services are available through Sterling Capital Management LLC, a separate subsidiary of BB&T Corporation. Sterling Capital Management LLC manages customized investment portfolios, provides asset allocation analysis and offers other investment-related services to affluent individuals and businesses. Securities and other investments held in investment management or investment advisory accounts at Sterling Capital Management LLC are not deposits or other obligations of BB&T Corporation, Branch Banking and Trust Company or any affiliate, are not guaranteed by Branch Banking and Trust Company or any other bank, are not insured by the FDIC or any other government agency, and are subject to investment risk, including possible loss of principal invested. 11