for the week ending August 18th, 2017

Transcription

1 for the week ending August 18th, 2017 Market Focus: Stocks dropped last week as a politically inspired and tech-driven sell-off Thursday reversed what were nice gains for the markets early in the week. The S&P 500 finished down 0.65%, and is up 8.34% year to date. Last week started strong, as the S&P 500 rallied 1% Monday on reduced North Korea tensions. On Tuesday, good retail sales and a strong Empire Manufacturing report were offset by disappointing retailer earnings (DKS, AAP, COH), and stocks ended flat on the day. Then, after trading flat for most of Wednesday, dovishly interpreted FOMC minutes caused markets to rally into the close, and the S&P 500 finished up 0.14%. However, that early week strength was completely undone Thursday, as the S&P 500 dropped 1.5%, making it the second-worst performance of The catalyst was a rumor about Gary Cohn resigning from the White House, and while it proved not to be true, it underscored the fact that prospects for tax cuts (and foreign profit repatriation) are getting dimmer by the week. The S&P 500 fell consistently throughout the session (the terrorist attack in Spain also hit markets), and closed on the lows, and at fresh one-month lows, led down by the tech sector. On Friday, stocks tried to steady and the markets opened at, but they drifted very slightly lower early Friday on some mild follow through selling. Stocks bounced midmorning after the news that White House strategist Steve Bannon had been ousted, as that is seen as potentially positive for the passage of tax cuts. But, in what was a disappointing turn of events for the bulls, the bounce faded into the afternoon and stocks closed very slightly lower, and down on the week. Economic Focus: Lack of inflation has central banks rethinking In recent months markets have been anticipating that the European Central Bank will join the US Federal Reserve in beginning a long process of monetary policy normalization. However, in minutes of recent policy discussions, both the Fed and the ECB sent more dovish signals than the markets were expecting. Some policymakers were concerned that inflation is not moving toward the central banks 2% targets despite recent upticks in economic growth. The tone of the ECB minutes has lowered expectations that Mario Draghi will use next week s speech at an annual Fed symposium in Jackson Hole, Wyoming, to set the stage for a shift toward a less accommodative monetary policy. Any discussion on that matter will now wait until fall.

2 This Week Upcoming Economic Focus: Release Date Briefing.com Consensus FHFA Housing Price Index August 22 nd NA MBA Mortgage Applications August 23 rd NA Initial Claims August 24 th 237K Existing Home Sales August 24 th 5.56M Natural Gas Inventories August 24 th NA Durable Orders August 25 th -6.0% Table 1: Briefing.com Earnings Focus: The 2nd Quarter 2017 earnings within the S&P 500 Of the 474 companies that have reported earnings for the 2nd Quarter 2017, 73.8% have reported earnings above analyst expectations. This is above the long-term average of 64% and the average over the past four quarters of 71%. Furthermore, 68.9% of companies have reported Q2, 2017 revenues above both analyst short-term expectations of 56% and the long-term average of 59%. The estimated earnings growth rate for the S&P 500 of Q2, 2017 relative to Q2, 2016 is expected to increase 12.1%. When you examine the individual sectors, eleven of the eleven sectors are estimated to report a yearover-year increase in earnings relative to Q The Energy and Information Technology sectors have the highest earnings growth rate for the quarter, while the Consumer Discretionary sector has the lowest anticipated growth compared to Q The S&P 500 revenue growth rate is estimated to increase 5.1% for the quarter. The Energy sector is expected to have the highest estimated revenue growth rate while the Telecommunication Services sector is expected to have the lowest. The forward four-quarter (3Q17-2Q18) P/E ratio of the S&P 500 is 17.6, in line with the fifteen year average. This week August 21 st, S&P 500 companies are expected to report quarterly earnings. Other News: US investigating China trade President Trump signed an order this week directing the Office of the United States Trade Representative to conduct an investigation into China s trade practices with regard to intellectual property theft and the forced transfer of technology in order to be granted access to Chinese markets. If China is found to be in violation, Trump can skirt the World Trade Organization and order tariffs under the Trade Act of Meanwhile, NAFTA negotiations are set to begin this week between the United States, Canada and Mexico. US Trade Representative Robert Lighthizer said the US is not looking for mere tweaks in the existing treaty, but substantial changes that assure balance and reciprocity. Thomson Reuters, First Trust, Sevens Report & MFS.

3 Market Momentum Focus: One important aspect to the Harvest Focus is that it will provide you with key information about how various sectors and asset classes are trending relative to one another and also to the broad market. The Market Focus will help you better understand the momentum investment approach utilized by the AlphaSolutions strategies that we employ to help you Harvest Gains and Limit Losses. It will also help demonstrate our rules based investment approach of why specific positions were purchased or held onto and why others were sold. We have highlighted a few of the significant changes from a week ago. There were a few significant movements in the Major Asset Classes and Sectors, the Consumer Non-Cyclical moved up 5 ranking 11 th and the LargeCap Blend moved up 2 ranking 7 th. The LargeCap Value fell 2 to 14 th and the Russell 3000 Index fell 2 to 15 th. AlphaSolutions 13/50 Model Update: Current Holdings: Cash 1.0% MoneyMarket Figure 2 Source: W E Sherman & Co, LLC MDY 20.0% SPDR S&P MidCap 400 ETF Trust Unit Ser 1 Standard & Poors Deposit Receipt SPY 20.0% SPDR S&P 500 ETF Trust Tr Unit DIA 20.0% SPDR Dow Jones Industrial Average ETF Trust Unit Ser 1 QQQ 20.0% PowerShares QQQ Trust Unit Ser 1 IWM 19.0% ishares Trust Russell 2000 ETF

4 The Big Picture: The big picture is the months-to-years timeframe; i.e., the timeframe in which Cyclical Bulls and Bear operate. Below is a snapshot of the current indicator statuses we closely watch for broad market direction: Figure 3 Source: W E Sherman & Co, LLC US Bull-Bear Equity Indicator this week is 64.30; lower than last week s This is a longer term (months to years) indicator for the market direction and is used to establish the equity allocation in many of our AlphaSolution s strategies. Figure 4 Source: W E Sherman & Co, LLC

5 Personal Wealth Enhancer Tip: Remember when you were a kid, things were simple, good, and secure. You kept things in a box, but as you grew older the number of boxes grew until you could not keep track of everything. The Question here is do you know where everything is, or what everything is worth? Because, if you don t know you should, and now you can all in one place instead of having things tucked away in boxes all over the place. You can have a secured location for all your finances and information with daily updates and financial activity. Don t make life difficult by trying to do things on your own, but let us help you with an integrated website that allows you to take control and feel at ease knowing where all your boxes are. Those who know what they have, fare better than most. Click here to watch the video. Click Here to watch the video explanation of the AlphaSolutions Sector Rotation Model by Harvest s Managing Director Tim Newell. The video gives an excellent description of how the model is setup and how all our models are rules based and what kind of protection they can potentially offer you. For More Model Information: AlphaSolutions Models Sources Include (but are not limited to): The Sherman Reports, Sevens Report, First Trust, MFS & Thomson Reuters