The week that was…
The never ending rally continued at pace this last week, with solid gains Mon thru Wed, followed by some quiet consolidation the final 2 days of the week. This action simply is a grind for any remaining bears to have to deal with as there is no relent. As happened late in the prior week (“phenomenal” was the word), indexes rallied Wednesday as President Donald Trump said a “massive” tax plan would be coming in the “not-too-distant future.” Yellen testified and Donald showed restraint in not tweeting about her.
“Even though we have social unrest and building geopolitical tensions, the market refuses to fall in any meaningful fashion, which means there remains a very strong underlying bid in the market,” said Adam Sarhan, chief executive officer of 50 Park Investments. “This is due to a confluence of a few factors, including the earnings recession being over, a very strong bull market, and the hope for future prosperity under the pro-growth policies of the new administration.”
One thing to note is that while the senior indexes full of large caps continued to levitate, the Russell 2000 (smaller cap, U.S. oriented stocks) stalled again. So bulls will call that a healthy rotation, while bears will say a warning sign.
During Congressional testimony mid week, Federal Reserve Chairwoman Janet Yellen signaled that the central bank could gradually raise interest rates sooner rather than later. Some market participants read Yellen’s reference to the Fed raising rates at “upcoming meetings” as indicating that an increase of benchmark rates at the Fed’s March meeting, which Wall Street has been pricing in as unlikely, is still on the table. Fed member forecasts for rates suggest that the central bank will raise rates three times in 2017, but the market isn’t expecting an increase before the Federal Open Market Committee’s June meeting.
A quiet week of economic news but the Producer Price Index for January jumped by 0.6%, the largest rise since 2012, suggesting inflation may be heating up. Wednesday, retail sales were reported to have gained 0.4% in January vs expectations of 0.2%
We mentioned last week that it had been 80 days without a loss of 1% or more. So obviously that means zero down days of 1%+ thus far in 2017. Here is how that compares to other years.
We are now up to 88 days without a 1% drop… not far off the record. As of Wednesday:
The S&P 500 has gone 86 trading days without a decline of at least 1%—marking the longest such streak since Nov. 24, 2006, and is closing in on the 105-day streak set on Dec. 15, 1996.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short. (Ignore the colors at the bottom of the chart, for some reason Mon-Wed is in red, while Thu-Fri is in green, rather than red being down days, and green being up days)
The most innovative (as measured by # of patents filed) “countries” in 1 map; U.S. states are broken out on their own.
The map of the most innovative countries—as measured by the number of patents filed between 1977 to 2015—shows that when it comes to new ideas and technology, the U.S. is in a league of its own. It is so far ahead of other competitors, in fact, that many U.S. states eclipse bigger nations. Globally, Japan is the most innovative after the U.S., followed by Germany, South Korea and Taiwan.
The week ahead…
Markets will be closed Monday for President’s Day. As with last week there is not a bevy of economic news that will move markets and we are done with the major earnings reports. Janet Yellen won’t be testifying so it looks to be a quiet week from a news perspective. FOMC minutes will be released Wednesday; as will existing home sales (5.55M expected). On Friday we’ll get new home sales with 583K expected.
Short term: Last week we said the only negative thing in these 2 charts is that things are “extended”. So we will repeat that this week and just say things are “even more extended”. You’d like to see the price at least within spitting distance of the 20 day moving average on a major index to feel comfortable.
The Russell 2000 did not partake this week – it remained stuck at the top of this yellow range.
The NYSE McClellan Oscillator near zero is a bit of a surprise with the major indexes in rally mode last week.
Long term: Here are 5 year charts on the major indexes; again nothing negative here other than things are extended… in fact the NASDAQ has now broken ABOVE the upper part of our channel on a weekly basis! Could mean we have some pullback coming.
Charts of interest:
Wednesday, Fossil (FOSL) tumbled after quite negative guidance on future earnings along with some less than positive details in the current quarter.
Among the details analysts highlight are the fourth-quarter sales miss “despite a much-hyped push into wearables (that was three years in the making),” management’s need to reinvest in wearable pricing in order to drive volume, and a plan to relaunch wearables in the third quarter with lower pricing, which will drive down profitability. Analysts anticipate that pricing will be 10% lower.
SodaStream (SODA) spiked on it’s earnings report mid week, but gave it all back later in the week.
Earnings rose nearly six fold to $15.6 million, or 71 cents a share, from $2.8 million, or 13 cents a share, in the same period a year ago. The FactSet consensus for earnings per share was 36 cents. Revenue increased 17% to $131.8 million from $112.9 million, beating expectations of $125.5 million, amid 18% growth in Western Europe and 20% growth in the Americas. Sparkling water maker starter kit sales surged 37% to $56.7 million, while consumables sales increased 5% to $74.0 million.
Groupon (GRPN) – back from the dead?
Thursday, MGM Resorts (MGM) fell 9.3% after the company reported earnings for the fourth quarter, in which profit missed expectations.
Likewise, TripAdvisor (TRIP) dropped 11% after the travel website’s quarterly results fell short of analysts’s targets.
Have a great week and we’ll see you back here Sunday!