Weekly Market Recap May 22, 2017

Transcription

1 Last Week: After a seesaw week, the Dow Jones Industrial Average ended down 92 points or (-0.4%) o A barrage of media reports and allegations hit President Trump post the firing of former FBI Director James Comey, sending both the Dow Industrials and S&P 500 indices down 1.8% and Nasdaq composite down 2.6% on Wednesday The market battled back on Thursday and Friday o Top performers were Walmart +3.3%, McDonald s +1.3%, United Technologies +0.8%, Chevron +0.7% and UnitedHealth +0.6% o Worst were Cisco (-8.8%), which reported solid earnings, yet weak guidance, Goldman Sachs (-4.3%), Nike (-3.7%), JP Morgan (-2.9%) and DuPont (-2.1%) Dow Utilities was up +0.4% Dow Transports was down (-1.4%) S&P 500 was down (-0.4%) o Real Estate, Staples and Utilities led o Financials, Consumer Discretionary, Telecom and Tech lagged o Earnings growth accelerated in the first quarter, revision trends are considerably better than the previous five years and consensus estimates show the S&P 500 EPS to expand by over 10% in 2017, representing the first double-digit earnings growth since 2011 Source: Wolfe Research 1

2 Wolfe Research forecasts an increase in U.S. real GDP from 1.5% 2.0% to 3.0%+ o With such optimism, is it any wonder that Sotheby s sold an untitled Jean-Michel Basquiat painting for $110.5 million, the highest price ever paid at auction for a work by an American artist? Source: Sotheby s In other earnings news, Alibaba (ticker: BABA), Tencent (ticker: TCEHY) and other major Chinese internet companies showed strong results, as did Walmart (ticker: WMT) and Home Depot (ticker: HD), relative to expectations o Most other major retailers that reported struggled The CBOE Volatility Index (VIX) showed some life per the oscillating stock market this last week. It closed up 4.94 points Wednesday, the largest one day gain since early September (see below) o 50 cent, a U.S. equity option trader, scored the biggest one-day gain this year on Wednesday, roughly $27 million according to Macro Risk Advisors Source: Bloomberg 2

3 The 10-year Treasury yield was down 9 basis points to 2.23% Nasdaq was down (-0.6%) Source: Bloomberg WTI Crude rebounded to $50.33 per barrel, up +5.2%, not far off from the 52-week high, but still well below the $80 - $100 range between 2010 and mid-2014 o Source: Bloomberg Oil prices extended on optimism that OPEC may agree to a deal to limit output until at least March 2018 The S&P Smallcap 600 was down (-1.2%), while the Midcap 400 was down (-0.4%) 3

4 Gold prices rose to $1,256/ounce, up +2.2%, and continue to bounce off December lows Source: Bloomberg M&A headlines that grabbed attention last week were mostly conjecture: o Colgate Palmolive (ticker: CL) rose the most in almost nine years as Street Insider reported Kraft Heinz (ticker: KHC,) backed by Warren Buffett and 3G Capital, is considering a takeover. The suggested sticker price is roughly $90 billion o Reports surfaced again that Sprint parent SoftBank is looking to buy wireless rival T-Mobile. It s not a question of will talks happen, T-Mobile s CFO Braxton Carter, told a New York conference audience Thursday. Of course they re going to happen o Thermo Fisher Scientific (ticker: TMO) will acquire Patheon (ticker: PTHN), a contract development and manufacturing organization (CDMO) for $7.2 billion. The combination is expected to be immediately accretive o Moody s (ticker: MCO) announced the acquisition of Bureau van Dijk for $3.3 billion. This is the largest acquisition in Moody s history Economic data reports: o Housing starts came in at 1.17 million, below the 1.26 million estimated. New home construction fell for the second straight month. Building permits were also below estimates o The Philadelphia Business Outlook Survey defied expectations of a decline, rising to 38.8 from 22.0 prior, near the February 43.3 reading, the highest in several decades On the contrary, earlier in the week the New York Empire State Manufacturing Survey, a regional PMI, slipped to levels of stagnant activity. Consensus expectations were for +7.0 versus the (-1.0) reported 4

5 o Weekly Initial Jobless Claims came in at 232,000, below consensus of 240,000 U.S. Dollar Index was down (-2.1%) last week, sitting on its two-year median level of 97 now, but well above its five year lows of roughly 80 Source: Bloomberg European equity markets were mixed last week o The Euro Stoxx 50 was down (-1.4%) o The FTSE 100 was up +0.5% o The CAC 40 was down (-1.5%) o The DAX was down (-1.0)% Asian equity markets were also mixed o The Hang Seng was roughly flat, up +0.1% and near the 52-week high Source: Bloomberg 5

6 o The Nikkei was down (-1.5%) o The Shenzen was up +0.5% From Credit Suisse s chart below, money has been flowing to foreign stocks in May Furthering support for global market optimism, according to Ned Davis Research, 91% of MSCI ACWI markets are above their rising 200-day moving averages, 85% of the Manufacturing PMIs have positive momentum, more than half of the global markets have positive trailing earnings growth, and 96% have positive forward earnings growth From the chart below, the Ned Davis Daily Trading Sentiment Composite indicator has reached extreme pessimism, per discussion of Trump s impeachment. Over the last ten years, the market has rallied 35% per annum when the indicator has reached this level This Week: Source: Ned Davis Research Markets in Asia were up overnight o The Nikkei closed up +0.5% European markets were mixed in early trading o The FTSE is up +0.6% 6

7 o The CAC 40 rose +0.2%, while the Euro Stoxx 50 fell (-0.2%) o The Dax was down (-0.3%) The U.S. markets are higher premarket o The S&P 500 and the Dow Jones Industrial futures are both up 2 points and 30 points, respectively o Gold is up +0.3% to $1,257/ounce o West Texas crude is up +1.3% to approximately $51/barrel o Natural gas is up at $3.31/MMBtu o The 10-year Treasury yield is 2.25%, essentially flat M&A activity: o Huntsman Corporation, the specialty chemical company, is acquiring Swiss chemical company, Clariant AG, for $10 billion in stock o Perhaps small bank M&A is starting to percolate with Berkshire Hills Bancorp of Massachusetts buying Commerce Bancshares for $209 million IPO news: o Initial public offerings remain light even with the markets close to record highs Quarterly earnings season continues this week with the following select companies in the S&P 500 reporting: o Monday: Agilent o Tuesday: Autozone, Intuit o Wednesday: Tiffany, Lowes o Thursday: Hormel, Medtronic, Dollar Tree, Costco Economic data reports: o New home sales data will be released for the U.S. on Tuesday, with the survey of Bloomberg economist calling for 610,000 new units o Existing home sales data will also be released on Wednesday, with a consensus estimate of 5.65 million new units o Initial jobless claims on Thursday have consensus estimates of 238,000 o U.S. GDP will be released Friday with 0.9% quarterly growth estimated U.S. Housing data will provide evidence one way or the other on continued domestic economic growth 7

8 Source: Strategas On the heels of Deere s positive results last week, market participants will be looking for signs of continued improvement in capital expenditure spending Will Trump s challenges galvanize the Republican legislature to pass meaningful reform ahead of the mid-term elections? 8

9 Source: Strategas What are investment managers who increased financial exposure as part of the Trump trade going to do now? Source: Strategas Are we poised for more upside in the market with the steep decline in bullish sentiment that is usually a contra indicator for market moves? 9

10 Source: Bespoke Eyes will continue to be on economic growth prospects in Japan where GDP has accelerated Source: Strategas Will there be a reprieve for bricks and mortar retailers in the battle with Amazon? 10

11 Source: Yardini As always, thanks very much for your interest and support. Dan Morrall Executive Director Chip Wittmann, CFA Executive Director 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 11

12 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. 12