The Week In Review
The stock market registered a modest decline on Friday to end the week on a slightly lower note. The S&P 500 shed 0.2%, ending the week lower by 0.1%. The Dow Jones Industrial Average (-0.04%) also posted a Friday loss, but gained 0.4% for the week.
Equities spent the Friday affair inside narrow ranges amid a mixed showing from individual sectors. Most countercyclical groups displayed strength from the start, but their gains were not sufficient to offset losses among cyclical sectors. In addition, a late morning report indicated that the Chinese Navy seized an unmanned U.S. Navy submarine that was conducting operations in the South China Sea. The incident took place yesterday and the U.S. government demanded the return of the Navy drone.
The news weighed on sentiment, keeping the market near its low into the afternoon. Treasuries climbed off their lows in reaction to the news, but afternoon backtracking left the 10-yr note in the middle of its range. The benchmark yield slipped one basis point to 2.59%.
Heavily-weighted technology (-0.8%) and financials (-0.9%) lagged from the start, which prevented the market from staging a meaningful rebound. The financial sector narrowed its December gain to 4.3% while technology trimmed this month's advance to 2.5%. Oracle (ORCL 39.13, -1.73) and Adobe Systems (ADBE 103.52, -1.58) were among the notable laggards after both reported earnings. However, their bottom-line beats were overshadowed by weak guidance. Oracle lost 4.2% while Adobe fell 1.5%. High-beta chipmakers also lagged, sending the PHLX Semiconductor Index lower by 1.0%.
Staying on the cyclical side, the consumer discretionary sector (-0.5%) also contributed to the weakness in the market as retail stocks recorded broad-based losses in the wake of yesterday's report from the NPD, which showed a 3.0% year-over-year decline in cumulative dollar sales in the first five weeks of the holiday shopping season. The SPDR S&P Retail ETF (XRT 45.91, -0.64) surrendered 1.4%.
The energy sector (+0.6%) was the only cyclical group that spent the day above its flat line, thanks to a 2.0% spike in crude oil, which settled at $51.90/bbl. The energy component gained 0.8% for the week after marking a new 2016 high on Monday ($54.51/bbl).
Similar to energy, countercyclical sectors recorded gains. Real estate (+1.2%) and utilities (+1.2%) held the lead throughout the day while consumer staples (+0.5%), telecom services (+0.6%), and health care (+0.1%) posted modest gains.
Investor participation was well above average due to quadruple witching. More than two billion shares changed hands at the NYSE floor.
Economic data was limited to Housing Starts and Building Permits:
- November housing starts declined 18.7% to a seasonally adjusted annual rate of 1.090 million units (Briefing.com consensus 1.225 mln).
- Building permits declined 4.7% to a seasonally adjusted annual rate of 1.201 million (Briefing.com consensus 1.236 million), although permits for single-family homes increased 0.5% to 778,000
- The November report followed a big beat in October, thus market reaction was limited
Investors will not receive any economic data on Monday.
- Russell 2000 +20.7% YTD
- Dow Jones Industrial Average +13.9% YTD
- S&P 500 +10.5% YTD
- Nasdaq Composite +8.6% YTD
Week in Review: Stocks Hold Ground as Fed Hikes
The past trading week featured sideways action in the major averages as the S&P 500 shed 0.1% while the Dow Jones Industrial Average (+0.4%) outperformed. Small caps saw relative weakness with the Russell 2000 falling 1.7% after being at the forefront of the post-election rally.
The first session of the trading week was headlined by news from Vienna, where non-OPEC producers agreed to reduce their output by 558,000 barrels per day. In addition, a Saudi official indicated that his country may implement a larger cut than what was agreed to on November 30. Crude oil surged to a fresh 2016 high on the news, but pulled back as the week wore on to end the week with a modest gain.
Equity indices surged on Tuesday as the Fed began its two-day meeting, which concluded with a Wednesday rate hike. However, in addition to increasing the fed funds target range by 25 basis points, the FOMC signaled the intention to raise rates three times in 2017, which was up from market expectations for two rate hikes.
The FOMC decision and guidance weighed on Treasuries and boosted the dollar. Selling in the 10-yr note pushed up its yield to 2.60% from last Friday's 2.47% while the U.S. Dollar Index jumped 1.3% to its best level since early 2003.
The past week saw increased trading volume due to Wednesday's FOMC decision, but participation is expected to be on the decline going into the last two weeks of the year.