U.S. markets traded higher for the fourth-straight session following Friday’s run to continued all-time highs. The Dow rose 0.9% after trading to 25,299 ahead of the closing bell while setting its third-straight record close.
The S&P 500 climbed 0.7% while closing at 2,743 and a third-point off its fourth-straight closing high. For the week, the S&P jumped 2.6% while the Dow soared 2.3%.
The Nasdaq added 0.8% after tapping 7,137 while ending a half-point off its fourth-straight closing high. The Russell 2000 closed above the 1,560 level after advancing 0.3% but missed a fresh record high by three-quarters of a point.
For the shortened week, the Nasdaq rallied 3.4% while the Russell 2000 was up 1.7%.
Technology and Health Care paced sector leaders after rising 1.1% and 0.9%, respectively. Energy and Utilities were the only laggards with each slipping 0.04% and 0.01%. Over the past five sessions, Materials have rose 3.9% followed by Energy and Technology with gains of 3.8% and 3.7%, respectively.
Utilities have fallen 2.6% over the same time period while Real Estate has sank 2% and are the only sectors showing losses.
Fourth-quarter earnings season gets underway this week with a number of Banking companies reporting ahead of Friday’s opening bell.
Total Q4 2017 earnings for Banks industry are expected to be down 6% from the same period last year on 5.3% higher revenues.
For the Finance sector as a whole, total Q4 earnings are expected to be up 3.1% compared to the same period last year. This would follow a 7% decline in the sector’s earnings due to weakness in the insurance industry as a result of the Gulf Coast hurricanes.
Total Q4 earnings are expected to be up 8.8% from the same period last year on 6.9% higher revenues. This would follow 6.7% earnings growth for the Q3 2017 on 5.9% growth in revenues.
Global Economy- European markets closed higher across the board to end the week with UK’s FTSE 100 adding 0.4% while closing at its second-straight all-time high.
Germany’s DAX 30 rallied 1.2% and France’s CAC 40 jumped 1.1% and the Belgium20 advanced 1% while the Stoxx Europe 600 was higher by 0.9%.
Eurozone November PPI rose 0.6% month-over-month and 2.8% year-over-year, topping expectations of 0.3% and +2.5%, respectively.
The Eurozone December CPI estimate was up 1.4% year-over-year, matching expectations. The December core CPI rose 0.9% year-over-year, weaker than expectations of 1%.
German November retail sales were up 2.3% month-over-month, stronger than expectations for a rise of 1% and the largest increase in 13 months.
Asian markets showed continued momentum for the fourth-straight session with Japan’s Nikkei hitting a 26-year high after adding 0.4%. South Korea’s Kospi showed the most strength after popping 1.3% while Australia’s S&P/ASX 200 gained 0.7%.
Hong Kong’s Hang Seng advanced 0.3% to a 10-year high and China’s Shanghai climbed 0.2%.
Nonfarm payrolls rose 148,000 in December, missing expectations for a gain of 225,000. The unemployment rate was steady at 4.1% last month.
Factory orders increased 1.3% in November, above forecasts for 1.1%.
ISM’s services index fell 1.5 points to 55.9 in December and below expectations for a reading of 57.6.
The International Trade deficit of $50.5 billion for November was higher than the $49.9 billion forecast.
Baker-Hughes Rig Count reported U.S. rig count were down 5 rigs from last week to 924, with oil rigs down 5 to 742, gas rigs unchanged at 182, and miscellaneous rigs unchanged. The U.S. Rig Count is up 259 rigs from last year’s count of 665, with oil rigs up 213, gas rigs up 47, and miscellaneous rigs down 1 to 1.
Market Sentiment- Cleveland Fed Loretta Mester expects inflation to rise to its 2% target over the next couple of years in a sustainable fashion, while noting the economic expansion remains firmly in place and labor markets are strong.
She’s not opposed to studying alternative inflation targeting regimes, but is not necessarily endorsing a change. She didn’t directly address monetary policy in the remarks.
Philadelphia Fed President Patrick Harker said he believes two hikes in 2018 seem appropriate. He noted the FOMC may need a policy rethink given low inflation and that soft inflation poses a significant risk if it persists.
He expects growth of a little less than 2.5% this year and inflation is likely to be running a little above 2% by next year, but suspects it will come down to the target the following year.
The labor market, however, has very little slack left and Harker thinks job creation will slow to around 100,00 per month by the end of 2019.
He is monitoring the yield curve but suspects worries over the flattening are a bit inflated. He went on to add he doesn’t believe the current situation is analogous to the inversion and stagflation evident in the 1970’s and 80’s.
NY Fed’s Q4 NowCast model rose to 3.97% compared to 3.87% previously, while the Q1 2018 estimate was nudged up to 3.45% from 3.15% previously. The Q4 GDPNow model from the Atlanta Fed was cut to 2.7%, down from 3.2% previously, as the gap between the two remains large.
The iShares 20+ Year Treasury Bond ETF (TLT) traded lower for the second-straight session after bottoming at $125.36. Support at $125.50-$125.25 and the 50-day moving held into the closing bell with risk to $125-$124.75 on a close below the latter.
Lowered resistance is at $126-$126.25. RSI has been struggling to hold 50 with risk to 40 on continued closes below this level. A move above 55 would be a bullish development.
Market Analysis- The Russell 3000 Index ($RUA) traded to an all-time high of 1,621 on Friday after clearing the 1,600 level midweek. We mentioned momentum could carry the index towards 1,625-1,630 with a close above the latter getting fresh resistance at 1,645-1,650 in play.
Support is at 1,605-1,600 with a move below the latter likely signaling a short-term peak. RSI has cleared late November and mid-December hurdles and is approaching 80 and October resistance.
The Spiders S&P Homebuilders ETF (XHB) is back in an uptrend and at decade highs after clearing prior resistance at $44.50.
The all-time high is north of $46 that was reached in February 2006 with Friday’s high reaching $45.47. Continued closes above $45.50 would be a bullish signal. Support is at $45-$44.75.
RSI has cleared 70 with late November/ early December resistance at 80 in play on continued strength.
The percentage of S&P 500 stocks trading above the 50-day moving is currently at 92.85% after peaking at 94.04% for two-straight sessions and ahead of Friday’s closing high.
This is a 5-year peak with the late March 2016 high tapping 95.35%. Resistance is at 95%-97.5% on continued closes above 90% but is signaling overbought levels. Support is at 90%-87.5%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 80.76% with late April and early May resistance at 85% in focus on continued momentum.
Support is at 80%-77.5% with a move below the latter signaling a short-term top.
All the best,