The week that was…
This rally is getting long in the tooth so simply from a duration standpoint some caution is merited. There are other reasons which we will outline later. That said this particular week was a quiet group of sessions with mild gains and losses mixed in; the market was closed on Monday. Earnings were the focus of the week as was the Trump speech Friday where investors may begin to start pivoting off hope for everything to be perfect, and start looking at the reality of Washington D.C. doing Washington D.C. things. Even with 1 party controlling both major branches.
Overseas, the European Central Bank, as expected, left interest rates unchanged Thursday. The decision was expected after the ECB last month decided to extend its bond buying program through the end of 2017. ECB head Mario Draghi said there was “no convincing upward trend in underlying inflation” adding the central bank was ready to expand its quantitative-easing program if needed. His comments pushed the euro and the yen lower against the dollar.
On the economic front, the consumer-price index, a widely watched gauge of inflationary pressure, showed price growth accelerated in 2016 at the fastest pace since 2011. In December, the index rose 0.3%. Excluding the volatile food and energy categories, prices rose 0.2%.
This was another week “Dow 20K” was not attained; and in fact we might have just seen a bearish double top.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
Chuck E. Cheese is going public later this year!
The parent of Chuck E. Cheese has begun preparations for an initial public offering (IPO) that could value the U.S. restaurant chain at more than $1 billion, including debt, people familiar with the situation said on Tuesday. // // // The IPO would be a bet that Irving, Texas-based Chuck E. Cheese’s arcade games and kid-focused activities will differentiate it in the minds of investors from other more commoditized restaurant chains that have failed to whet their appetite. Its closest competitor, Dave & Buster’s Entertainment Inc (PLAY), saw comparable store sales increase nearly 6 percent in the third quarter of 2016 over the year prior, a slower growth rate than the 8.8 percent growth it achieved in 2015.
The week ahead…
A lot more S&P 500 earnings ahead and Trump executive actions will certainly have the market on its toes.
“Earnings have been a mixed bag so far, and we’ll need to see some follow-through there in order to justify valuations, let alone for the market to be taken higher,” Joy said. “But recent economic data has been encouraging, including here, in Europe, and in China. In that respect Trump has a bit of a tailwind.”
“At present markets do not seem to be anticipating problems either in terms of delays by Congress, or in boosting growth significantly. Such optimism is likely to be questioned: prepare for a reappraisal of the Trump trade,” said Keith Wade, Chief Economist at Schroders
Existing home sales Tuesday, new home sales Thursday, and fourth quarter GDP (2.2% expectation) & durable good Friday are the key economic reports.
A nice simple infographic here from research firm Acritas Research on the “Trump Effect”:
Short term: The NASDAQ has taken the baton from the S&P 500 as a rotation happens into areas that have lagged. Nothing poor yet in the S&P 500 but let’s keep an eye on this purple trend line to see if it holds.
The Russell 2000 was the star of latter 2016, post Trump election. 2017 has not been good, and now we are starting to see some leading weakness – another warning sign.
The NYSE McClellan Oscillator went negative this week; although not by a huge amount. That said if we see a divergence here where the indexes hold up ok but this indicator stays red it usually is a major warning sign. So keep an eye on this one this week!
Long term: Here are 5 year charts on the major indexes; for those with this sort of time frame the S&P 500 failing this entire breakout along with the NASDAQ falling out of the bottom of it’s channel are things to one day be concerned about; we are nowhere near that day currently.
Charts of interest:
The U.S. dollar was in an amazing post Trump rally; but 2017 has seen things cool off. The dollar dropped this week as Trump told The Wall Street Journal in an interview that published Friday the U.S. currency was “too strong” because China was keeping its own yuan weaker. “Our companies can’t compete with them now because our currency is too strong, and it’s killing us.”
Clayton Williams Energy (CWEI) shot up 39% Tuesday after oil producer Noble Energy (NE) said it would pay $2.7 billion to buy its smaller rival.
Target (TGT) closed down 5.8% Wednesday after the retailer warned that its fourth-quarter earnings would be weaker than previously anticipated after a tough holiday season. Thursday and Friday were not kind either!
Cameco (CCJ) had been on absolute fire the past week but fell 18% Wednesday after the uranium miner said it would cut 10% of its workforce and warned on earnings due to a continued weak market.
Netflix (NFLX) surged 3.9% Thursday, after stronger-than-expected earnings, fueled by a big jump in international subscriber growth.
Netflix enjoyed its biggest quarter for new customers yet, adding 7.05 million net new members globally in the quarter, easily topping its forecast of 5.2 million. In the U.S., where it has a far more saturated customer base, it also showed good growth, adding 1.93 million members in the quarter, exceeding its forecast of 1.45 million, fueled in part by much of its original and exclusive content. At the end of 2016, Netflix claimed 93.8 million total customers, with 44.37 million of those outside the U.S., part of a strong growth year for the company.
Netflix is now offering locally created shows, in their local language, for specific countries, a move that is adding to costs but also helping it grow outside the U.S. For example, its first Brazilian series, “3%,” premiered as one of the most watched originals in Brazil and played well throughout Latin America, Netflix said.
CSX (CSX) shot up 23% Thursday, its best daily gain since it went public nearly 4 decades ago, after reports that exiting Canadian Pacific Railway CEO Hunter Harrison will join with activist investors to target the railroad giant.
Bristol Myers Squibb (BMY) tumbled 11% Friday after the pharmaceutical company said it wouldn’t pursue accelerated approval for a lung cancer combination treatment.
Have a great week and we’ll see you back here Sunday!