Weekly Market Recap December 4, 2017

Transcription

1 Last Week: Only 19 more trading days before year end what s worked so far this year Source: WSJ.com The Dow Jones Industrial Average jumped higher on the prospect of tax legislation passing in the U.S., popping +2.9% o The Dow crossed 24,000 for the first time in history o Two Dow components gained over +10%, with a third narrowly missing double digits (United Health +14.3%, Goldman Sachs +13.0%, 3M +9.8%)... top gainers were rounded out with Home Depot +8.1% and JPMorgan Chase +6.5% o Advancers led decliners by a 5-to-1 margin the five names in red territory: Apple (-3.9%), Visa (-1.0%), GE (-0.3%), DowDupont (-0.2%) and Intel (-0.1%) o Leading the way for the week were old school industry groups: grocery stores, apparel retailers, landline telecom, railroads and delivery services o The biggest declining group was coal for the second consecutive week semiconductors, toys, internet and technology hardware rounded out the five worst groups for the week 1

2 Dow Transports moved into the passing lane, accelerating +5.9%, while Utilities tacked on another +1.1% The S&P 500 could not keep up with the Dow, moving ahead only +1.7% o The November gain marked a 13 th consecutive move higher for the total return index, a feat never before achieved During that 13 month period, the return has been +27.4% The march higher has been evenly distributed: three months gained less than 1%; three up 1%-2%; three up more than 3% (the best month was +4.0%); and four up 2%-3% o The only sectors to finish the week in the red were Real Estate and Technology It was a solid week for smaller stocks, as the S&P Mid Cap 400 advanced +1.9% while the Small Cap 600 only managed a +1.1% gain NASDAQ s technology weighting dragged it down, as the index lost ground (-0.6%) The Volatility Index (VIX) moved back to levels of two weeks ago, moving higher all five days to finish the week at Overseas markets didn t want to join the party, as most posted declines o The Europe STOXX 600 retreated (-0.7%) while the larger markets (Frankfurt, London, Paris) all posted losses nearer (-1.5%) o Asia experienced even deeper declines for the most part, with China s Shenzhen (-2.1%) and Shanghai (-1.1%) outpacing Bombay (-2.5%) and Hong Kong (-2.7%) Tokyo was a bright spot, posting a +1.2% gain, while Australia +0.1% barely squeezed into black numbers for the week 10-year Treasury yields were basically unchanged for another week, closing at 2.36% 2

3 Crude oil also was little changed, finishing the week at $58.36/barrel o OPEC agreed to extend output limitations for another 9 months through 2018 Gold fell $10 for the week, ringing the register at $1,282/ounce The dollar also saw little change for the week Greece s creditors unlocked the next tranche of financial aid, and the country will seek to raise debt publicly later this year. We d be interested in understanding who would commit capital to a nation that has defaulted on its sovereign obligations six times within the last 200 years. According to a marketwatch.com article this morning, Greece s unemployment rate stands at 27.5% Senate Republicans managed to bring home a tax bill on Friday evening, so now the House and Senate will form a conference committee to reconcile their two bills Source: Wolfe Research o o More pressing may be the need to pass a stopgap spending measure to keep the Federal government operating past this coming Saturday It was a big week for nominations, but also tension again showed in the Trump White House Secretary of State Tillerson is rumored to be on his way out Trump tweeted about an FBI in tatters Special Prosecutor Robert Mueller announced a plea agreement with Mike Flynn, with the potential for connections with Jared Kushner North Korea resumed test firing missiles The Consumer Financial Protection Board had fireworks of its own, as Trump nominee Mick Mulvaney stepped in to run the agency after the former director had already appointed a replacement, Leandra English a federal judge had to make the choice, with Mulvaney getting the nod 3

4 Bitcoin surged to $9,700 Monday Tuesday, it eclipsed $10,000, and by Wednesday morning exceeded $11,000 by Wednesday afternoon it had fallen to $9,100. We re not saying it s a bubble, but Vanguard founder John Bogle did, Avoid bitcoin like the plague. Did I make myself clear? Several German newspapers joined the growing chorus. Bitcoin is the tulip bulb of the 21 st century financial markets, Suddeutsche Zeitung quoted a Deka Bank economist as saying. The accompanying chart compares Bitcoin to various historical mania, with only the Dutch Tulip mania ranking higher Bloomberg reports that even if Warren Buffett and Bill Gates pooled all of their resources, they couldn t buy all the Bitcoin in circulation 4

5 Venezuela apparently is preparing to launch its own cryptocurrency, backed by oil, natural gas, gold and diamonds. We can t help but wonder whether they should add hearts, moons, and clovers into the mix as well o The country s black market exchange rate now sits at 103,000 Bolivars to the U.S. dollar, versus the official exchange rate of 10-to-$1 o On Wednesday when Bitcoin surged and then plunged, the FANG stocks got defanged, as Facebook lost -4%, Amazon -2.7%, Netflix -5.5%, and Google -2.5%. Some corporate news of note: o CVS finally agreed to acquire Aetna for $69 billion o Disney and 21 st Century Fox reportedly have restarted discussions around an asset swap New Home Sales rose to 685,000 in October, which marked their highest level in a decade and came in well above the 620,000 consensus forecast Pending Home Sales increased 3.5% in October, well above the 1% consensus guess. That broke a 3-month string of declines S&P s Case-Shiller Home Price index jumped 0.7% sequentially and 6.2% year-over-year in September, marking the highest growth rate since 2014 The backlog of new homes also climbed to a 10-year high, with another 221,000 homes under construction 5

6 Third quarter GDP got revised up to 3.3% from an original estimate of 3.0%, marking the fastest growth rate in three years. If fourth quarter GDP comes in at 3%+, it would mark the first three quarter streak of 3%+ growth since Weekly jobless claims printed 238,000, essentially matching the Street consensus Personal Income and Personal Spending each rose 0.3% in October, exactly in-line with consensus estimates Core PCE (the Fed s preferred inflation gauge) showed a 1.4% year-over-year increase, still below the Fed s desired 2% level The Conference Board s Consumer Confidence index surged to in November, well above the consensus forecast and its highest level since November Such high degrees of confidence in 2000 proved misplaced, as the economy entered a rough patch from , so a friendly reminder to consider this a coincident (rather than leading) indicator with an appropriate grain of salt 6

7 Dallas Fed President Rob Kaplan signaled he supports a Federal Reserve interest rate increase, saying, I believe it will likely be appropriate, in the near future, to take the next step in the process of removing monetary accommodation For anyone who thinks otherwise, Fed Chair elect Jerome Powell all but put the icing on the cake at his Congressional confirmation hearing, saying, I think the case for raising interest rates at our next meeting is coming together. Conditions are supportive of doing that 7

8 This Week: U.S. markets are looking to open higher as tax reform cleared another hurdle late Friday/early Saturday Asian stocks closed modestly lower o Shanghai (-0.2%), Nikkei (-0.5%), while Hong Kong squeaked higher +0.2% European stocks are rallying, with the major markets up around +1.0% Brexit discussions ramp up again today, as PM Theresa May meets with leaders of the European Union and European Commission The Bank of Canada announces its interest rate decision on Wednesday, and all eyes are really on the central bank decisions coming the week of December 11 There are a few earnings reports of note this week: o Monday: Bob Evans and Dave & Buster s o Tuesday: Autozone, IDT, Lands End and Toll Brothers o Wednesday: American Eagle, Broadcom, Brown Forman, Fred s, H&R Block, Hudson Bay, Keysight Technologies, Lululemon and Vera Bradley o Thursday: Ciena, Dell, Dollar General and United Natural Foods It s a light week on the economic calendar: o Monday starts with durable goods and factory orders o Tuesday brings trade balance, the services PMI, and non-manufacturing ISM o Wednesday we get the ADP jobs report and productivity/labor cost information o Thursday focuses on consumer credit, household net worth and jobless claims o Friday brings the U.S. jobs report, Michigan confidence and wholesale trade/inventories We remain very thankful for your interest and support. Farley Shiner, CFA Managing Director Adam Bergman, CFA Executive Director 8

9 The Chartered Financial Analyst (CFA) charter is a graduate-level investment credential awarded by the CFA Institute the largest global association of investment professionals. To earn the CFA charter, candidates must: 1) pass three sequential, six-hour examinations; 2) have at least four years of qualified professional investment experience; 3) join CFA Institute as members; and 4) commit to abide by, and annually reaffirm, their adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct. Specific securities identified and described do not represent all of the securities purchased, sold or recommended to clients. There are no assurances that securities identified will be profitable investments. The securities described are neither a recommendation nor a solicitation. Security information is being obtained from resources the firm believes to be accurate, but no warrant is made as to the accuracy or completeness of the information. 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. 9