The week that was…
Another good week for bulls as a Monday holiday was followed by 3 days of gains mixed in with 1 very tiny pullback Thursday. Dow 20K remained a tease.
It is worth noting large cap technology was a big laggard in the Trump rally; those stocks finally woke up Thursday and Friday this week.
The first week of the month is very heavy on economic data so let’s review:
- Tuesday – the Institute for Supply Management said its manufacturing index climbed to 54.7 in December from 53.2. The reading was higher than expected, and the highest level in two years. Any reading over 50 signifies expansion.
- Also Tuesday, a read on construction spending rose 0.9% in November, above expectations and the sixth increase of the past seven months.
- Wednesday, minutes from the Federal Reserve’s December meeting were released in which it was inferred interest-rate hikes may come at a faster-than-expected pace.
- Thursday, ISM Services came in at 57.2, 0.1 ahead of expectation.
- Friday, the government said the economy created 156,000 jobs last month, below the consensus of 180,000 forecast by economists. However, sharp upward revisions for November jobs number and a slight trimming of October number means the latest payrolls were more or less in line, according to analysts. More importantly, wage growth—often seen as a precursor to inflation—picked up to mark the fastest annual increase since a recovery that began in mid-2009.
As we wrote last week we focus on the U.S. market but we like to look overseas from time to time – look at the Japanese index since Trump’s election; pretty interesting action for a country that loves to export … and people expecting some sort of trade war.
Byron Wein is in his 32nd year of making “surprise” predictions (these are outlier type events) – always a fun read.
“The purpose of The Ten Surprises is to stretch my thinking (and hopefully yours) about what might happen in the coming year,” Wien wrote in a column for Barron’s. “I don’t tamp down the Surprises to get a high hit score.”
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
The week ahead…
After a week of key economic data all we really have next week is Friday’s retail sales which is set for a jump of 0.7% vs 0.1% the prior month. With the transition from Obama to Trump fast approaching, actual economic policy may begin to affect the market rather than vague expectation. Earnings season also begins in earnest with a slew of major banks among other heavy hitters.
S&P 500 earnings for the fourth quarter are expected to grow by about 3% from the year-ago period, according to John Butters, senior earnings analyst at FactSet. Probably the biggest boost will come from the financial sector, which is projected to see growth of 13.8%
Short term: Both indexes fell out of their wedges to the downside but “more or less” hung around the 20 day moving average (the NASDAQ being the weaker of the two) the week prior to last. We wrote last week this is something to monitor if there was not a quick reversal. The quick reversal did happen.
The Russell 2000 was the star of latter 2016. It looked to break out Wednesday but failed Thursday and Friday it was a downer on an otherwise up market. Let’s see if that foreshadows anything next week or if that was a random flutter.
The NYSE McClellan Oscillator went negative the week prior to last, making us look at this indicator closer this week. However we are back to the safe zone.
Long term: Here are 5 year charts on the major indexes; for those with this sort of time frame it is going to take a lot of work to get bearish.
Charts of interest:
The Mexican peso continues to get “Trumped”.
Oil had some jumpy moves this week including a sharp drop Tuesday but what we see in the intermediate term is a breakout from mid December and a holding pattern since. As the 20 day moving average has “caught up” to price, the action seems to be quite healthy.
Tuesday, Xerox (XRX) jumped 20% after Credit Suisse upgraded the company to “outperform.”
Wednesday, Weight Watchers (WTW) shares surged about 21% after the weight-loss company said it program was ranked #1 in several categories of a U.S. News & World Report list of diets. It did proceed to give a lot of that back up Thursday and Friday!
This week in lottery pick biotechs, Agile Therapeutics (AGRX) sank 47% Wedneday after the women’s health company late Tuesday reported positive results in a study of its Twirla contraceptive patch, but said 51.4% of participants had to discontinue the study.
Breaking! Brick & mortar retail sucks! By breaking I mean “have you been around the past 3+ years?” What’s interesting is shares of these companies actually surged post election – only to get the “Lucy pulls the football away from Charlie Brown effect” soon enough.
Thursday, shares of Macy’s (M) plummeted to close down 14% after the department-store chain late Wednesday announced plans to close 68 stores and lay off 10,000 employees in 2017. Fellow retailer Kohl’s (KSS), saw its worst trading day ever, finishing down 19%, after it cut its fiscal 2016 earnings outlook late Wednesday, following volatile holiday sales.
Have a great week and we’ll see you back here Sunday!