The Week In Review

11/18/16

 The stock market ended an upbeat week on a modestly lower note as the major averages consolidated after an impressive post-election run. The S&P 500 lost 0.2%, narrowing its weekly gain to 0.8%. Separately, the Russell 2000 (+0.5%) and the Nasdaq Composite (-0.2%) outperformed, rising a respective 2.6% and 1.6% this week.

The major averages jumped out of the gate as the S&P 500 (-0.2%) and the Nasdaq Composite (-0.2%) each zeroed in on their respective all-time highs. The tech-heavy index notched a new all-time intraday high (5346.80), but was unable to establish a new closing high. The benchmark index, however, reversed just below the 2190 price level.

Equities were unable to regain their footing as investors assessed whether the broader market has risen too far, too fast. An appreciating US Dollar Index (101.28, +0.39, +0.39%), rising market rates, and volatility from the oil pit also worked to keep the broader market in check.

The long-end of the yield curve has been on the rise in recent days as investors mull rising inflation concerns and improving economic data. The combination has prompted an exodus from longer-dated issues. The yield on the benchmark 10-yr note increased four basis points to 2.34%, leaving the yield up 51 basis points since the end of October. An improving rate hike outlook has also dampened buying interest in the bond market.

Per the CME's FedWatch Tool, the implied probability of an interest rate hike at the December FOMC meeting has increased to 95.4% from yesterday's 90.6%. A number of Federal Reserve speakers contributed to the uptick, indicating that the FOMC will likely go ahead with its next rate hike in December.

The benchmark index finished just below its flat line with seven sectors ending in negative territory. The health care (-1.1%) space outpaced today's losses in the broader market while energy (+0.5%), telecom services (+0.5%), and financials (+0.1%) finished at the top of the sector leaderboard.

Biotechnology demonstrated relative weakness in the health care space (-1.1%), evidenced by the 1.3% loss in the iShares Nasdaq Biotechnology ETF (IBB 284.72, -3.80). The industry group has narrowed its gain in recent days as investors walk back their post-election reaction. Mylan (MYL 36.47, -1.09) ended lower by 2.9% after Mizuho trimmed its price target from $49 to $47. The broader sector lost 1.2% this week, but remains up 3.2% in November.

In the consumer discretionary space (-0.3%), Gap (GPS 25.61, -5.10, -16.6%) and Abercrombie & Fitch (ANF 14.60, -2.33, -13.8%) weighed on the broader retail sub-group. The two demonstrated relative weakness after disappointing participants with their quarterly results and guidance. Conversely, casual restaurant names outperformed after Yum! Brands (YUM 62.36, +1.60, +2.6%) added $2 billion to its share repurchase program.

The financial (+0.1%) group extended its recent winning streak as banking names continued to outperform. The industry group has surged in the aftermath of the election as steepening in the yield curve boosted the earnings prospects for the group. The SPDR S&P Bank ETF (KBE 40.41, +0.24) gained 0.6%, extending its November gain to 16.6%. This compares to a gain of 12.1% in the broader sector.

The commodity-sensitive energy sector (+0.5%) led the pack as investors reevaluated the likelihood of an OPEC supply cap agreement. WTI crude finished the day higher by 1.0% ($46.38/bbl; +$0.45).

Today's trading volume was below the recent average of one billion as fewer than 926 million shares changed hands at the NYSE floor.

Today's economic data was limited to Leading Indicators for October:

The Conference Board's Leading Economic Index increased 0.1% in October after increasing 0.2% in September.

It was noted by the Conference Board that the six-month growth rate has moderated, but that the index still points to the economy continuing to expand into early 2017.

Investors will not receive any noteworthy data on Monday.

Russell 2000: +15.9% YTD

Dow Jones: +8.3% YTD

S&P 500: +6.8% YTD

Nasdaq Composite: +6.3% YTD

Week in Review: S&P 500 Back Near Record Levels

The stock market enjoyed its second consecutive week of gains that lifted the S&P 500 into the neighborhood of its record high. The benchmark index gained 0.8% for the week while the Nasdaq Composite (+1.6%) outperformed after lagging one week ago. Conversely, the Dow Jones Industrial Average (+0.1%) underperformed after showing relative strength during the election week.

The overall post-election narrative did not change much during the past week. Expectations for inflationary fiscal policy kept the bond market under pressure, driving the benchmark 10-yr yield up to a one-year high of 2.34% from last Friday's 2.14%. Continued steepening in the yield curve helped the financial sector extend its November gain to 12.3% while the U.S. Dollar Index (101.34) climbed to its best level since early 2003.

Market participants received a batch of quarterly earnings from the retail sector during the past week. Apparel retailers had a mixed showing while electronics retailer Best Buy (BBY) surpassed estimates and issued upbeat guidance for the holiday quarter. Home Depot (HD) also released upbeat earnings and guidance while Wal-Mart (WMT) struggled after its earnings beat was overshadowed by declining profitability. More than 95.0% of S&P 500 components have now reported their third-quarter results, showing an earnings growth rate of 3.0%.

Last week featured Janet Yellen's testimony before the Joint Economic Committee of Congress, but the appearance was free of any big surprises. Chair Yellen acknowledged that recent economic data has lived up to the Federal Reserve's expectations, and noted that a rate hike will be appropriate "relatively soon." Ms. Yellen's appearance had little impact on the fed funds futures market, which continues pointing to a near certainty of a rate hike in December. The implied probability of a December hike rose to 95.4% from last Friday's 81.1%.