The Week In Review
Stocks climbed to new records on Friday as a looming government shutdown proved no match for the new year rally.
The Nasdaq Composite jumped 0.6% to 7336.38, the S&P 500 climbed 0.4% to 2810.30, and the small-cap Russell 2000 rocketed 1.3% to 1597.61. All three indices finished at new all-time highs. The Dow Jones Industrial Average rose 0.2% to 26071.72, but did not post a new record.
Trading ranges were pretty narrow for most of the day, but a late wave of buying left the major averages at their session highs.
Nonessential government operations will halt if Congress fails to pass a new funding measure before midnight. The House of Representatives passed a bill that would extend funding for another month on Thursday evening, but its passage in the Senate--where Republicans need Democratic help to reach the 60-vote threshold--looks unlikely.
Senate Minority Leader Chuck Schumer (D-NY) met with President Trump on Friday afternoon, but said after the meeting that they still have "a good number of disagreements." Nonetheless, Mr. Schumer said discussions will continue.
Back on Wall Street, the political drama did little to dampen the mood, which has been especially bullish since the start of 2018; the major stock indices have added between 5.1% and 6.3% year to date. Nine of eleven sectors advanced on Friday with the consumer staples sector (+1.1%) setting the pace.
Within the consumer staples group, tobacco giant Philip Morris (PM 108.92, +3.85) was the top performer, jumping 3.7%, after Jefferies upgraded PM shares to 'Buy' from 'Hold.'
Meanwhile, in the consumer discretionary sector (+0.9%), Dow component Nike (NKE 67.21, +3.10) climbed 4.8% after Wedbush upgraded NKE shares to 'Outperform' from 'Neutral,' and home improvement retailer Lowe's (LOW 104.95, +3.59) added 3.5% following a Bloomberg report that an activist investor believes the company's stock could triple in value if it makes some changes to better compete with rival Home Depot (HD 201.33, +3.00).
The financial sector (+0.7%) also outperformed despite a poor showing from American Express (AXP 98.03, -1.83), which dropped 1.8% after disappointing guidance for fiscal year 2018 overshadowed better-than-expected earnings and revenues for the fourth quarter.
On the flip side, the energy sector (-0.1%) finished near the bottom of the sector standings, suffering from a decrease in the price of crude oil; West Texas Intermediate crude futures dropped 0.9% to $63.30 per barrel.
The technology sector (+0.2%) was also relatively week with Dow component IBM (IBM 162.37, -6.75) losing 4.0%. IBM reported year-over-year revenue growth for the first time in 23 quarters, but its service margins and earnings outlook were disappointing.
In the bond market, U.S. Treasuries sold off on Friday, sending yields higher across the curve. The benchmark 10-yr yield jumped three basis points to 2.64%, hitting its best level since the middle of 2014, while the 2-yr yield climbed two basis points to 2.05%.
Elsewhere, equity indices in the Asia-Pacific region finished mostly higher, as did the major European bourses. Germany's DAX was the top performer in Europe, advancing 1.2% to a two-month high, while India's Sensex (+0.7%) set the pace in Asia, settling at a new all-time high.
Reviewing Friday's economic data, which was limited to the preliminary reading of the University of Michigan Consumer Sentiment Index for January:
- The preliminary reading of the University of Michigan Consumer Sentiment Index for January declined to 94.4 (Briefing.com consensus 97.0) from 95.9 in December.
- The key takeaway from the report is that despite the headline drop, consumers reported persistent strength in personal finances and buying plans.
Investors will not receive any economic data on Monday.
- Nasdaq Composite: +6.3% YTD
- Dow Jones Industrial Average: +5.5% YTD
- S&P 500: +5.1% YTD
- Russell 2000: +4.0% YTD
Week In Review: Bulls Dominate Another Week
It was another good week on Wall Street; the Dow Jones Industrial Average jumped 1.0%, the Nasdaq Composite climbed 1.0%, and the S&P 500 added 0.9%. However, the bulls looked somewhat fatigued, at least in comparison to the first two weeks of the year; the S&P 500 rose 2.6% in the first week of 2018 and 1.6% in the second. This week, the S&P 500 posted losses in two of four sessions (markets were closed on Monday for Martin Luther King Jr. Day).
Maybe it's the beginning of the end for the new year rally. Maybe not.
What is certain is that 2018 has been a great year for the stock market thus far. The Dow, the Nasdaq, and the S&P 500 have advanced between 5.1% and 6.3% year to date and have notched a handful of new records along the way. And that's to say nothing of the stock market's 2017 campaign, during which the major averages climbed between 19.4% and 28.2%.
Financials dominated the earnings front this week with Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), U.S. Bancorp (USB), Charles Schwab (SCHW), Morgan Stanley (MS), and American Express (AXP) reporting their fourth quarter results. All seven companies beat earnings estimates, but revenues came in mixed; Goldman Sachs, Morgan Stanley, and American Express reported above-consensus revenues, while Bank of America missed estimates. The S&P 500's financial sector (+1.0%) finished roughly in line with the broader market.
Meanwhile, the health care sector (+1.9%) was among the top-performing groups this week. Within the space, UnitedHealth (UNH) rose 6.4% after reporting better-than-expected earnings for the fourth quarter, and Merck (MRK) jumped 4.5% after announcing that its drug Keytruda was successful, in combination with two chemotherapy drugs, as a first line treatment for lung cancer.
The consumer staples (+2.4%) and technology (+1.5%) sectors finished alongside health care at the top of the sector standings. The tech group's largest component by market cap--Apple (AAPL)--announced that it will make a one-time tax payment of $38 billion to repatriate cash holdings overseas and will invest over $30 billion in the U.S. over the next five years, creating 20,000 new jobs. Apple said its decision was the result of recent changes to the U.S. tax law.
Meanwhile, IBM (IBM) slipped 0.5% despite reporting year-over-year revenue growth for the first time in 23 quarters.
The industrial sector (-0.9%) slid this week with General Electric (GE) pacing the retreat. GE shares tumbled 13.3%, hitting a six-year low, after the industrial giant said its legacy reinsurance business will take a larger-than-expected charge of $6.2 billion for the fourth quarter. In addition, the company was reported to be considering a major breakup.
The energy sector (-1.3%) also underperformed as crude oil retreated from a three-year high; West Texas Intermediate crude futures dropped 1.6% to $63.30 per barrel.
In Washington, the House of Representatives passed a one-month spending measure on Thursday evening, but that bill doesn't appear to have enough support to pass in the Senate, where it needs Democratic votes to reach the 60-vote threshold. If an agreement cannot be reached by 12:01 AM ET Saturday morning, the government will start closing non-essential operations.
Investors didn't appear to be shaken though, pushing the S&P 500 and the Nasdaq to new records on Friday.