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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

3/2/18

Wall Street finished a disappointing week with a mostly positive outing on Friday. The S&P 500 and the Nasdaq finished with gains of 0.5% and 1.1%, respectively, largely thanks to a late rally that left the two indices at their best marks of the day. Meanwhile, the Dow lost 0.3%, and the small-cap Russell 2000 jumped 1.7%.

President Trump's decision to impose tariffs on steel and aluminum imports, which was announced on Thursday, prompted threats of retaliation from leaders around the globe and sent stocks lower in Asia and Europe overnight. Wall Street joined the global sell off at the opening bell, with the S&P 500 quickly dropping 1.0%, but the market started to regain its footing about an hour into the session. By midday, the S&P 500 had climbed all the way back to its unchanged mark.

The outperformance of the heavily-weighted health care (+1.0%) and technology (+1.0%) sectors, which represent around 40.0% of the broader market combined, helped lift the benchmark index. Within the health care group, biotechnology shares showed particular strength, evidenced by the 2.4% increase in the iShares Nasdaq Biotechnology ETF (IBB 109.65, +2.61). Meanwhile, chipmakers were among the top performers in the tech space, pushing the PHLX Semiconductor Index higher by 1.8%.

In total, seven of eleven S&P 500 sectors finished in the green. Health care and technology were the best performers, while real estate (-0.4%) was the worst.

The latest batch of fourth quarter earnings included several retail names, including Gap (GPS 34.18, +2.48, +7.8%), Nordstrom (JWN 53.04, +2.93, +5.9%), Foot Locker (FL 40.04, -5.84, -12.7%), and J.C. Penney (JCP 3.71, -0.21, -5.4%). The results were mostly better than expected (GPS, FL, and JCP all beat earnings estimates, while JWN missed).

Meanwhile, Dow component McDonald's (MCD 148.27, -7.43) dropped 4.8%, hitting its lowest level in more than nine months, after RBC Capital Markets trimmed its target price for MCD shares to $170 from $190, citing a disappointing launch for the fast food giant's $1, $2, $3 menu.

Elsewhere, U.S. Treasuries gave back most of their Thursday advance on Friday, pushing yields higher across the curve; the benchmark 10-yr yield jumped five basis points to 2.86%. The 10-yr yield finished the week lower by one basis point and nine basis points below the four-year high it hit on February 21.

In currencies, the yen advanced 0.5% against the U.S. dollar to 105.72, which is its best level since November 2016, after Bank of Japan Governor Haruhiko Kuroda said the BoJ would consider exiting from its aggressive monetary easing as early as 2019. Meanwhile, the euro jumped 0.5% against the greenback to 1.2329.

Friday's economic data was limited to the final reading of the University of Michigan Consumer Sentiment Index for February:

  • The final reading of the University of Michigan Consumer Sentiment Index for February dipped to 99.7 (Briefing.com consensus 99.5) from 99.9 in the preliminary reading.
    • The key takeaway from the report is that consumer sentiment remains near multi-year highs with consumers showing little concern about the prospect of rising interest rates.

On Monday, investors will receive the ISM Services Index for February (Briefing.com consensus 58.8) at 10:00 AM ET.

  • Nasdaq Composite: +5.1% YTD
  • S&P 500: +0.7% YTD
  • Dow Jones Industrial Average: -0.7% YTD
  • Russell 2000: -0.2% YTD

Week In Review: Selling Resumes

Stocks tumbled this week, with the S&P 500 dropping 2.0%. The Nasdaq Composite did a little better, and the Dow Jones Industrial Average did a little worse, losing 1.1% and 3.1%, respectively. The small-cap Russell 2000 showed relative strength, but still finished lower by 1.0%.

The week actually began on a positive note, with the S&P 500 jumping 1.2% on Monday, but took a turn for the worst on Tuesday when new Fed Chairman Jerome Powell testified before the House Financial Services Committee. Mr. Powell's prepared remarks didn't contain any surprises, calling for a continued path of gradual rate hikes. However, in the Q&A session, Mr. Powell noted that his economic projections have increased since the December FOMC meeting, prompting a negative reaction on Wall Street due to concerns that the Fed may hike rates more than expected.

The Fed forecasted three rate hikes for 2018 at its December meeting, but, in light of Mr. Powell's upwardly revised growth projections, investors have increased their expectations for a fourth hike. The CME FedWatch Tool places the chances of a fourth rate hike at 30.7%, up from 24.4% last week. The chances of a March rate hike are at 83.1%.

Fast-forwarding to Thursday, the equity market was dealt another blow, this time from President Trump, who announced that he'll be imposing tariffs on steel and aluminum imports--25% for steel and 10% for aluminum. Mr. Trump's decision prompted concerns about higher prices and retaliation from China and other trading partners.

However, outside of fundamental factors affecting this week's sell off, it's also important to note that the S&P 500 broke below its 50-day moving average, a key technical level that's provided the market with support since the 2016 presidential election. The benchmark index dropped below its 50-day moving average for the first time in five months during the big sell off at the beginning of February and has ticked back above it a few times since--most notably on Monday, when the S&P 500 hit a three-week high.

The S&P 500 initially found support at its 50-day moving average on Wednesday, but selling accelerated after the index broke through the level on its second attempt. If this week's selling continues, investors will be looking for other potential areas of support, including the S&P 500's February low (2581) and its 200-day moving average (2561).

11 of 11 S&P 500 sectors finished the week in negative territory, with industrials (-3.3%) and materials (-4.0%) being the weakest performers. The technology (-0.8%), consumer staples (-1.3%), and telecom services (-0.7%) groups exhibited relative strength, but the remaining sectors lost between 2.0% and 2.9%.

A slew of retailers reported earnings this week. TJX (TJX) rallied 7.0% on Wednesday after reporting better-than-expected earnings and revenues for the fourth quarter and raising its profit guidance. Conversely, Lowe's (LOW) dropped 6.5% in the same session after missing Q4 earnings estimates and lowering its profit guidance for fiscal year 2019. The SPDR S&P Retail ETF (XRT) finished the week lower, but ahead of the broader market, losing 1.4%.

In other corporate news, Comcast (CMCSA) dropped 7.4% on Tuesday after upping a bid from 21st Century Fox (FOXA) for a large stake in British broadcaster Sky. 

Headlines provided by Briefing.com