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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

2/16/18

Stocks kept their weekly gains intact ahead of the extended Presidents' day weekend, finishing Friday's session little changed.

The S&P 500 (unch) and the Dow Jones Industrial Average (+0.1%) eked out their sixth consecutive victories, while the Nasdaq Composite underperformed, finishing lower by 0.2%. For the week, the three major stock indices settled with gains between 4.3% and 5.3%.

Equities rose steadily throughout the morning, but reversed course in the early afternoon following news that a federal grand jury has indicted 13 Russian nationals and three Russian entities on accusations of interference in the 2016 presidential election. Some of those defendants allegedly communicated with unwitting individuals associated with the Trump campaign.

Trading was choppy following the headline, which, more than anything, gave investors a convenient excuse to pull back following five straight days of gains.

Six of eleven S&P 500 sectors finished Friday in the green, with the heavily-weighted health care group (+0.7%) being among the top performers. In general, countercyclical sectors outperformed their cyclical peers on Friday after trailing them throughout the week. The consumer discretionary (-0.4%), energy (-0.3%), and technology (-0.2%) sectors were among the worst-performing groups.

Steel and aluminum names rallied after the U.S. Department of Commerce recommended imposing tariffs on steel and aluminum imports. U.S. Steel (X 44.75, +5.76) and AK Steel (AKS 5.96, +0.72) spiked 14.8% and 13.7%, respectively, while Nucor (NUE 68.54, +2.96) and Steel Dynamics (STLD 49.40, +2.26) added around 4.5% apiece.

In earnings news, Coca-Cola (KO 44.98, +0.20) and Deere (DE 169.44, +2.63) added 0.5% and 1.6%, respectively, after reporting their fourth quarter results. Both companies beat earnings estimates, but revenues were mixed; Coca-Cola reported better-than-expected revenues, while Deere's revenues came in below consensus.

Conversely, Kraft Heinz (KHC 70.80, -1.91) lost 2.6% after missing Q4 profit estimates.

In the bond market, U.S. Treasuries ended the week on a flat note. The yield on the benchmark 10-yr Treasury note slipped one basis point to 2.88%, while the 2-yr yield ticked up one basis point to 2.19%. For the week, the 10-yr yield added two basis points, and the 2-yr yield jumped 12 basis points.

Reviewing Friday's batch of economic data, which included Housing Starts and Building Permits for January, Import and Export Prices for January, and the preliminary reading of the University of Michigan Consumer Sentiment Index for February:

  • Housing starts increased to a seasonally adjusted annualized rate of 1.326 million units in January (Briefing.com consensus 1.240 million), up from a revised 1.209 million units in December (from 1.192 million). Building permits increased to a seasonally adjusted 1.396 million in January (Briefing.com consensus 1.300 million) from a revised 1.300 million in December (from 1.302 million).
    • The key takeaway from the report is that it points to more supply coming to a housing market that is in desperate need of single-family supply. At the same time, this report provides a positive input for Q1 GDP as the number of units under construction in January (1.120 million) was 1.5% above the fourth quarter average.
  • Import prices excluding oil rose 0.4% in January after decreasing an unrevised 0.1% in December. Export prices excluding agriculture increased 0.9% in January after rising a revised 0.1% in December from (0.0%).
    • The key takeaway from the report is that it will continue to feed into the market's budding inflation expectations.
  • The preliminary reading of the University of Michigan Consumer Sentiment Index for February rose to 99.9 (Briefing.com consensus 95.5) from 95.7 in January.
    • The key takeaway from the report is that consumer sentiment wasn't dented by the stock market volatility. Rather, the improved sentiment reading was attributed to optimism over government policies, improved financial conditions, and expectations for larger income gains in the year ahead.

Markets will be closed on Monday in observance of Presidents' Day.

  • Nasdaq Composite: +4.9% YTD
  • S&P 500: +2.2% YTD
  • Dow Jones Industrial Average: +2.0% YTD
  • Russell 2000: +0.5% YTD

Week In Review: Bouncing Back

The equity market rallied this week, reclaiming about half of the losses it registered over the previous two weeks. The tech-heavy Nasdaq Composite climbed 5.3% as technology shares outperformed, while the S&P 500 and the Dow Jones Industrial Average added 4.3% apiece. The S&P 500 and the Dow ended Friday on a six-session winning streak.

This week's gains put the S&P 500, the Nasdaq, and the Dow back into the green for the year and back above their respective 50-day simple moving averages. They're still a ways below record territory, however, settling Friday about 5.0% beneath the record highs they posted on January 26.

11 of 11 S&P 500 sectors finished the week in positive territory, with gains ranging between 1.8% and 5.8%. The top-weighted technology group (+5.8%) was the strongest sector, while the energy (+1.9%), utilities (+2.9%), telecom services (+2.4%), and real estate (+1.8%) groups were the weakest.

In general, cyclical sectors, which tend to do well when the economic outlook is favorable, outperformed their countercyclical peers.

Within the tech group, Apple (AAPL), surged 10.2% this week, reclaiming most of the 13.5% it lost between January 18 and February 8, and Cisco Systems (CSCO) rallied 4.7% on Thursday--hitting its best level in nearly 20 years--after reporting better-than-expected profits for the quarter ending in January and raising its earnings and revenue guidance.

Investors received a big batch of economic data this week, highlighted by a hotter-than-expected CPI reading: the Consumer Price Index increased 0.5% month over month in January (Briefing.com consensus +0.4%) and the core CPI, which excludes food and energy, rose by 0.3% (Briefing.com consensus +0.2%). The headline month-over-month figures sparked a knee-jerk reaction from the market, which has been fighting fears of inflation--and, in turn, fears of a more hawkish Fed--in recent weeks.

However, the year-over-year figures helped restore order and keep the week's upward trajectory intact, showing that both the CPI and the core CPI are still within a range they've held to for some time; the total CPI is up 2.1% year over year and has been between 2.0% and 2.2% for five months, while the core CPI is up 1.8% year over year and has been between 1.7% and 1.9% for ten months. 

The yield on the benchmark 10-yr Treasury note climbed to a four-year high on Wednesday following the CPI release, closing at 2.91%, but gave up some ground on Thursday and Friday to finish the week little changed at 2.88%. Meanwhile, the 2-yr yield climbed 12 basis points this week, closing at 2.19%--its highest level in nearly a decade.

Meanwhile, in the currency market, the U.S. Dollar Index returned to a three-year low on Thursday (88.50), but bounced back a bit on Friday to finish the week with a loss of 1.4%. The greenback showed particular weakness against the Japanese yen, dropping 2.4% to 106.22, which is its lowest level since November 2016.

In Washington, the White House released its infrastructure plan on Monday, which is designed to stimulate $1.5 trillion in spending over a decade.

U.S. markets will be closed on Monday in observance of Presidents' Day.