Weekly Market Recap July 10, 2017

Transcription

1 Last Week: The Dow Jones Industrial Average finished the week in unexciting fashion, gaining only +0.3% o The index has closed with a change of less than 100 points in four of the last five weeks o There was not much individual stock action, as JP Morgan Chase bounced +2.7% to lead the index, followed by Boeing, McDonalds, DuPont and Goldman Sachs o General Electric got over the old news of a change at the top and declined (- 3.2%), joined by Disney, Verizon, Nike and Merck in the bottom five Dow Utilities declined for the fourth week in the last five, dropping another (-0.7%) Dow Transports revved higher, +131 points or +1.4% it was the fifth week in the last seven the group provided gains, as it has risen over +9.0% since mid-may o The Index set a new high July 5. According to Dow Theory, it is a bullish sign when the Dow Industrials and Dow Transports confirm one another, rather than diverge Source: Google Finance Nasdaq had very little bounce in its step, advancing just +0.2% The S&P 500 offered little movement as well, scooching higher by +0.1% o For the week, it was Financials again leading to the upside, with a little help from Industrials, while Real Estate and Energy provided a drag 1

2 The best industry groups for the week again included Aluminum which rolled out a +4.7% gain, followed by Airlines and Business Training up almost 4%, and then Defense and Home Construction up just over 2% Autos raced ahead of the other groups to the downside, braking (-4.2%), followed by Specialty Retailers, Marine Transportation, Apparel Retailers and Coal Small- and mid-cap indices also hovered around break even, with the S&P MidCap barely better than flat while the small cap index slipped (-0.1%) The CBOE Volatility Index (VIX) ended a bumpier week almost where it started, up only one click to Treasury yields on the 10-year moved higher for a second straight week, up nine basis points to 2.39% o The spread between the 10-year and the 2-year widened out to 98 basis points o The German 10-year sovereign debt saw its yield eclipse 0.5% for the first time in 18 months o The chart below provides some perspective on how the global yield curve appears today vs. six months ago o We reported a few weeks ago on Argentina seeking to issue 100-year sovereign debt. The country, which possesses a credit rating five levels below investment grade, managed to sell $2.75 billion of 100-year dollar-denominated bonds at a yield of 7.9%, below the original estimate of an 8.25% yield. The chart below shows the top 10 defaulting nations; Argentina has defaulted six times in the last 65 years. Caveat emptor! 2

3 WTI Crude gave back some of the prior week s recovery, dropping again below $45 to $44.57/barrel. Prices near current levels are well below breakeven levels for most oilproducing nations Gold prices fell over 2% to $1,212, down $29/ounce The U.S. Dollar Index held fairly steady, up 0.36 to o The Euro now stands at its highest level vs. the greenback in over a year, and sits at the top of a two and a half year range 3

4 European equity markets had an uneventful week also, with the STOXX Europe up only +0.2% even though Greece continued to rally, up another +1.7% o The major markets, London, Paris and Frankfurt, all saw weekly gains of +0.5% Asian equity markets finished the week mixed o China and India moved higher, with the Shanghai +0.8% and Shenzhen +0.5% while Bombay rose +1.4% o Tokyo took the other side of the trade and posted a decline of (-0.5%), joined by Sydney (-0.3%) and Moscow (-0.6%) Auto sales continue to slip from peak levels over the last few months o Tesla, meanwhile, has endured a bear market with its market value no longer exceeding that of Ford or General Motors, as its stock fell -19.5% in eight trading days, most recently on news from Volvo of its plans for electric and hybrid vehicles The G-20 meeting in Hamburg was greeted with riots in the streets and little movement in the meeting halls o The rest of the world didn t back down on the Paris Accord for climate change, believing the US withdrawal does not equate to the US not being committed to reducing emissions and other energy priorities o The US did get some wiggle room on the trade front, while leaders recognized that trade defense instruments have a role in the global economy o Presidents Trump and Putin met for the first time since the election, with a partial cease fire in Syria being agreed to, but little else other than kind words about the meeting and banter about election tampering The Senate s attempt to craft an acceptable repeal and replace of the Affordable Care Act remains very unsettled. Senator Rand Paul (R-Ky.) said: The bill is just being lit up like a Christmas tree full of billion dollar ornaments. And it s not repeal The minutes from the Federal Reserve s June meeting were released, and the topic du jour is when to start unwinding the balance sheet many are pointing to September o A visualization of how that might unfold is shown in the graphic below 4

5 o Fed Chair Janet Yellen was hospitalized for three days while on a trip to London, but has returned home and resumed her public schedule North Korea continued to flex its muscle as it successfully launched an ICBM (intercontinental ballistic missile) as Independence Day was dawning in the US diplomatic responses were swift as the UN gathered by Wednesday afternoon to discuss how to prevent this situation from escalating further Business combinations kicked off the second half: o Vantiv beat out JP Morgan Chase as the successful bidder for Worldpay, creating a sizable trans-atlantic payments processor o There may be one less shopping channel to watch QVC and Home Shopping Network (HSN) have agreed to merge o Berkshire Hathaway has reached a deal to buy electricity-transmission business Oncor for $9 billion, but could have to tussle with hedge fund Elliott Management to actually get the deal done on those terms Factory orders came in slightly below expectations, (-0.8%) while inventories grew very slightly, encouraging people forecasting 2.5%-3.0% GDP growth for 2Q The ISM Manufacturing index jumped to 57.8 in June from 54.8 in May, reaching its highest level since mid-2014, and surpassing expectations The ISM Services index rose to 57.4 in June, from 56.9 in May, above the 56.5 consensus forecast The Labor Department reported Non-Farm Payrolls jumped 222,000 in June (better than the 180,000 consensus forecast), while revising May data higher by 14,000 jobs and April figures up by 33,000 5

6 o The day before, ADP Private Payrolls data showed a gain of 153,000 jobs in June, below the 180,000 consensus estimate, so Friday s news was a sigh of relief o The unemployment rate ticked up to 4.4% o Average hourly earnings rose 2.5% over the past 12 months The latest economic data has resulted in the Atlanta Fed s GDP Now estimate to anticipate 2.7% second quarter economic growth 6

7 This Week: Asian markets closed mostly higher, sparked by the US market gains from Friday s jobs report, led by the Nikkei +0.8% and the Hang Seng +0.6% o Shanghai finished nominally lower, (-0.2%) European markets are following the leader, with Frankfurt +0.5%, Paris +0.3% and London ahead by +0.2% The U.S. markets look to open the week fractionally higher as well Fed Chair Janet Yellen will testify before the House on Wednesday and the Senate on Thursday as Congress comes back to work for a few weeks The European Central Bank announces any interest rate decision from its meetings on Thursday President Trump travels to France on Friday, a day after French and German officials hold a summit, to participate in Bastille Day events Companies reporting earnings start to ramp up this week: o Tuesday: Pepsi o Wednesday: Fastenal o Thursday: Delta o Friday: Citigroup, JP Morgan Chase, PNC, Wells Fargo Economic data reports are focused on home sales this week: o Tuesday has small business optimism readings and wholesale trade o Thursday gives us PPI and the weekly jobs reports o Friday is CPI, retail sales, industrial production and consumer sentiment As always, thanks very much for your interest and support. Farley Shiner, CFA Managing Director 7

8 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. 8