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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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The Week In Review

1/26/18

 

The equity market soared to new records on Friday, locking in its fourth consecutive week of gains.

The Nasdaq Composite jumped 1.3% to 7505.77 (a new record), the S&P 500 climbed 1.2% to 2872.87 (a new record), and the Dow Jones Industrial Average advanced 0.9% to 26616.71 (a new record). For the week, the major indices added between 2.1% and 2.3% and now hold year-to-date gains between 7.5% and 8.7%.

Stocks opened Friday modestly higher and steadily extended their gains throughout the session, finishing at their best marks of the day.

11 of 11 sectors advanced on Friday, with the heavily-weighted health care group (+2.2%) setting the pace. Biotech giant AbbVie (ABBV 123.21, +14.91) spiked 13.8% to a new all-time high after reporting better-than-expected earnings and revenues for the fourth quarter and issuing upbeat profit guidance for fiscal year 2018.

Meanwhile, the top-weighted technology sector (+1.6%) also had a positive showing, thanks in large part to Dow component Intel (INTC 50.08, +4.78), which jumped 10.6% to its best level in nearly two decades after reporting above-consensus earnings and revenues for the fourth quarter. The chipmaker also noted that it doesn't expect any material impact from the Meltdown and Spectre security concerns that were reported earlier this month.

On the downside, Starbucks (SBUX 57.99, -2.56) and Colgate-Palmolive (CL 73.56, -3.75) tumbled 4.2% and 4.9%, respectively, after missing Q4 sales estimates. The companies' respective sectors--consumer discretionary (+1.0%) and consumer staples (+0.6%)--finished behind the broader market. However, the rate-sensitive utilities sector was the weakest group, adding just 0.1%, as a sell off in the Treasury market pushed yields to multi-year highs.

The yield on the benchmark 10-yr Treasury note jumped four basis points to 2.66%--its best level since mid-2014--while the 2-yr yield also climbed four basis points, settling at 2.12%--its best level since 2008. For the week, the 2yr-10yr spread decreased to 54 basis points from 59 basis points.

In other corporate news, Twitter (TWTR 24.27, +2.11) had a solid showing, adding 9.5%, amid renewed takeover chatter, while Wynn Resorts (WYNN 180.29, -20.31) dropped 10.1% following a Wall Street Journal story filled with sexual misconduct allegations against founder and CEO Steve Wynn.

Elsewhere, President Trump spoke at the World Economic Forum in Davos, Switzerland on Friday morning, pitching the U.S. as a great place for international companies to invest. The president also reiterated that the U.S. supports free trade, but it must be "fair and reciprocal."

On a related note, reports indicate that President Trump is seeking $716 billion for defense spending in 2019, a 13% increase from the 2017 budget of $637 billion.

Reviewing Friday's batch of economic data, which included the advance estimate of fourth quarter GDP, Durable Orders for December, and advance International Trade in Goods and Wholesale Inventories for December:

  • Advance fourth quarter GDP pointed to an expansion of 2.6%, while the Briefing.com consensus expected a reading of 2.9%.
    • The key takeaway from the report is that consumer spending, which accounts for roughly 70% of GDP, was alive and well in the fourth quarter, increasing 3.8%--the fastest growth rate since the first quarter of 2015. Moreover, business spending also increased, with spending on equipment increasing 11.4%--the strongest since the third quarter of 2014.
  • December durable goods orders rose 2.9%, which is more than the 0.9% increase expected by the Briefing.com consensus. The prior month's reading was revised to +1.7% (from +1.3%). Excluding transportation, durable orders increased 0.6% (Briefing.com consensus +0.7%) to follow the prior month's revised uptick of 0.3% (from -0.1%).
    • The key takeaway from the report is that the pickup in durable goods orders is a reflection of an improving economy.
  • The advance report for International Trade in Goods for December showed a deficit of $71.6 billion (Briefing.com consensus -$68.5 billion), up from a revised deficit of $70.0 billion in November (from -$69.7 billion). The advance report for Wholesale Inventories for December showed an increase of 0.2% (Briefing.com consensus +0.3%). The prior month's reading was left unrevised at +0.7%.

On Monday, investors will receive the PCE Price Index for December, the core PCE Price Index for December, Personal Income for December, and Personal Spending for December. All data is set to be released at 8:30 AM ET.

  • Nasdaq Composite: +8.7% YTD
  • Dow Jones Industrial Average: +7.7% YTD
  • S&P 500: +7.5% YTD
  • Russell 2000: +4.7% YTD

Week In Review: Politics, Earnings, and New Records

Wall Street continued its strong start to 2018, posting gains for the fourth consecutive week. The Nasdaq jumped 2.3% this week, while the S&P 500 climbed 2.2%, and the Dow Jones Industrial Average advanced 2.1%. The three major indices finished Friday at new all-time highs and now hold year-to-date gains between 7.5% and 8.7%.

The first government shutdown since 2013 lasted just three days, coming to an end on Monday evening when Congress passed a short-term funding bill that will keep the government running until February 8. Republicans, who control the Senate 51 to 49, needed help from Democrats to pass the funding measure, as it requires 60 votes. Democrats resisted at first, forcing the shutdown, but eventually gave in after Republicans promised to soon address the fate of the so-called "Dreamers"--undocumented immigrants who were brought to the U.S. as children.

Meanwhile, President Trump made his way to Davos, Switzerland for the World Economic Forum, where he pitched to international companies and investors in a speech on Friday, saying "America is open for business." He also did an interview with CNBC in Davos, during which he clarified his administration's stance on the U.S. dollar, saying that he ultimately wants to see a stronger dollar. Earlier in the week, Treasury Secretary Steven Mnuchin said he welcomes a weakening of the dollar as it's "good for trade."

The U.S. Dollar Index made sharp moves in reaction to the aforementioned comments, ultimately ending the week lower by 1.6% at 88.92--its lowest level in three years.

Currency traders also chewed on the latest policy decisions from the Bank of Japan and the European Central Bank, which crossed the wires on Tuesday and Thursday, respectively. The two central banks voted to leave their policy rates unchanged, as expected, and the ECB reiterated that it intends to leave net asset purchases at the new pace of EUR30 billion per month until the end of September, or beyond, if necessary.

In U.S. corporate news, the fourth quarter earnings season continued this week with around 80 S&P 500 companies delivering their results. Netflix (NFLX) spiked 10.0% on Tuesday after wowing investors with its subscriber growth and first quarter guidance, while Intel (INTC) jumped 10.6% on Friday after reporting better-than-expected earnings and revenues and saying it believes there will be no material impact from the Meltdown and Spectre security concerns first reported at the beginning of the month.

On the downside, Texas Instruments (TXN) tumbled 8.5% on Wednesday after its latest earnings report came in as expected, but didn't impress investors enough to justify the chipmaker's 25.0% gain over the prior seven weeks. Airlines also struggled--evidenced the U.S. Global Jets ETF (JETS), which lost 4.7% for the week--following mixed results from Southwest Air (LUV), American Airlines (AAL), United Continental (UAL), Alaska Air (ALK), and JetBlue Airways (JBLU).

The advance estimate of fourth quarter GDP crossed the wires on Friday, showing a lower-than-expected expansion of 2.6% (Briefing.com consensus +2.9%). The key takeaway from the report is that consumer spending, which accounts for roughly 70.0% of GDP, was alive and well in the fourth quarter, increasing 3.8%--the fastest growth rate since the first quarter of 2015. Moreover, business spending also increased, with spending on equipment increasing 11.4%--the strongest since the third quarter of 2014.

The Federal Open Market Committee is set to release its latest policy decision this upcoming Wednesday, but the market doesn't expect the FOMC to make any changes; the CME FedWatch Tool places the chances of a rate hike at 3.6%. The market projects the next hike will occur at the March FOMC meeting with an implied probability of 79.7%.

Headlines provided by Briefing.com