Another winning week for the bulls, in a year full of them! Things kicked off with a bang with a gap up Monday as the after shocks of the Comey removal – the one thing that seemed to shake this market for 24 hours – passed in the night. Wednesday, minutes of the Federal Reserve’s latest policy meeting showed broad agreement on plans to begin shrinking the central bank’s balance sheet and also pointed to a likely rate increase next month, as widely expected. Another gap up to start the day Thursday and serenity was found for the week. Every day was up for the S&P 500 to book a weekly finished of +1.4% while the NASDAQ raced ahead +2.1%.
The minutes of the early May meeting showed that members were in agreement on a general approach to unwinding the massive balance sheet built up over the course of the asset-buying spree that was at the center of the Fed’s quantitative easing strategy. Nearly all Fed officials said they were content with a plan to end the reinvestment of principal of maturing securities — the main approach favored to shrink the balance sheet instead of asset sales — in slow, ever-increasing stages, rather than ending the reinvestment all at once. In their discussion of interest-rate policy, most Fed officials said it would “soon” be time to raise rates again, a signal that the majority among the central bank’s policy makers remain resolute about hiking rates at their meeting next month.
On the economic front, it was reported Wednesday that existing home sales fell 2.3% in April, coming in below expectations as lean inventory constrained demand. New home sales declined 11% but this is a volatile report month to month. Friday, data was released that showed orders for durable goods fell to a five-month low in April, though the decline was slightly narrower than had been expected. Separately, the latest estimate on first-quarter gross domestic product was revised higher, moving to 1.2% from 0.7%.
Here is the 5 day weekly “intraday” chart of the S&P 500 we made.
Fun fact: As of Thursday the S&P 500’s win streak marked the 11th time the large-cap index has risen for six sessions in a row in the past five years. In the 10 previous incidences, stocks were higher two weeks later 80% of the time, with an average gain of 57 basis points, according to Frank Cappelleri, executive director at Instinet LLC.
Look at those semiconductors go!
Speaking of technology, the weighting of that sector in the index is approaching rarely seen nose bleed levels. That said, one could argue theere is a secular shift in the U.S. economy as technology and healthcare take more and more share from “old school” sectors. That said, we said that in 1999 as well! Per Bespoke last Tuesday:
As of this morning, the Technology sector’s weighting has exploded higher up to 23%. That’s the highest weighting the Tech sector has seen since January 2001. It’s also 9.1 percentage points larger than the second largest sector in the market — Financials. Put another way, it’s also larger than the five smallest sectors of the market combined. While there’s no specific weighting to pinpoint that would suggest an imminent pullback for Tech is coming, we do become increasingly concerned about forward returns the higher the weighting gets.
Let’s look at this historically:
If it weren’t for the Dot Com bubble of the late 1990s, Tech’s current weighting would look much more ominous. But we would note that Tech didn’t cross above the 23% weighting mark until September 1999. So while the weighting for Tech went on to reach a ridiculous 34%+ at the peak in early 2000, it was only above its current weighting for the final few months of the Dot Com peak. Tech’s historical average S&P 500 weighting has been 15.39%, so right now it’s 7.66 percentage points above average.
Forty percent of millennials use Facebook feed as their SOLE source of news!
We’ve been warning about the potential dire effects of automation on the future job market for years – it seems many are now coming around to this view. Bill Gates and Mark Zuckerberg among them!
Zuck: “Our generation will have to deal with tens of millions of jobs replaced by automation like self-driving cars and trucks,” he said, adding, “When our parents graduated, purpose reliably came from your job, your church, your community,. But today, technology and automation are eliminating many jobs. Membership in communities is declining. Many people feel disconnected and depressed, and are trying to fill a void.”
Now it’s not all bad news: Robots are expected to create 15 million new jobs in the U.S. over the next 10 years, as a direct result of automation and artificial intelligence, equivalent to 10% of the workforce, a recent report by Forrester Research found.
But yeah there is bad news too: the downside…. robotics will also kill 25 million jobs over the same period.
The week ahead…
Markets are closed Monday for the holiday. We come back to an action packed week economically as the first week of the month always is!
Friday comes employment data for May with an expectation of 185,000 jobs created and an unemployment rate of 4.4%. Thursday ISM Manufacturing is expected to come in at 55.0, a slight uptick from last month’s reading of 54.8.
With Trump back in town, let’s see if any Russian theater affects markets.
Short term: The post Comey Wednesday pullback the prior week helped to relieve some of the massive short term overbought conditions that the NASDAQ exhibited. The index has taken advantage of that, racing ahead. The S&P 500 was battling with old highs of early March the past few weeks but tucked its nose over that Wednesday and burst ahead Thursday.
The Russell 2000 continues it’s inability to get out out his long standing range in yellow. Broken record alert.
The NYSE McClellan Oscillator had been sustained red for almost the entire month of May while the S&P 500 chopped around – this past week saw it go back to black.
Long term: Here are 5 year charts on the major indexes; we are a broken record here but it would take a very severe selloff to change prospects here. I’ve adjusted the upward trendline on the NASDAQ chart to better represent what appears to the top of it’s range.
Charts of interest / Big Movers:
Monday, financial giant Blackstone Group (BX) closed up 6.7% after Saudi Arabia’s Public Investment Fund pledged $20 billion to the firm’s new infrastructure fund. Let’s just say the timing of that is “interesting” considering who was visiting Saudi Arabia.
Tuesday saw a skew of big movers as Autozone (AZO) slid nearly 12%, marking its steepest decline since 2008, after disappointing earnings results.
Alexion Pharma (ALXN) shares declined 9.3% following a management shake-up at the drugmaker.
Bunge (BG) jumped nearly 17% following a report that Glencore PLC made a takeover approach for the grain trader.
It was a week. Therefore, a retailer had to take a hit – even at the high end. Tiffany & Co (TIF) reported profit ahead of expectations, but same-store sales unexpectedly fell, sending shares down 8.7% Wednesday.
Wait! What is this sorcery? A big move up for a retailer?? Best Buy (BBY) soared 22% Thursday after the retailer beat profit expectations, reported a surprise increase in same-store sales and provided an upbeat outlook. The stock’s double-digit percentage rise was the biggest one-day gain for the stock since Jan. 3, 2001.
And another Friday as Decker Outdoor (DECK) surged 19% a day after the Ugg boots maker posted a surprise quarterly profit.
Also Friday, Nutanix (NTNX) closed 11.5% higher after the cloud-computing company posted better-than-expected financial results late Thursday.
Have a great Memorial Day week and we’ll see you back here Sunday!