The Week In Review

12/9/16

The stock market wrapped up a strong week with another uptick on Friday. The S&P 500 gained 0.6%, extending its weekly advance to 3.1% while the Nasdaq Composite rose 0.5% to end the week higher by 3.6%.

Overall, the Friday affair was fairly quiet, allowing the market to continue respecting post-election trends. To be fair, small caps underperformed today, but the Russell 2000 (+0.1%) still ended the week ahead of other indices, jumping 5.6%.

Equity indices climbed off their opening levels thanks to strength in sectors like health care (+1.2%), consumer staples (+1.4%), and technology (+0.7%). The three influential groups provided an early boost while most of the remaining sectors saw inflows as the day went on. The relentless push higher invited another extension of gains during the final hour, suggesting performance chasing and short covering remained present in the market.

Biotechnology was among the early sources of strength, but the industry group retreated from its high into the afternoon. The iShares Nasdaq Biotechnology ETF (IBB 269.67, +1.15) added 0.4% after being up 2.6% at the start.

The intraday fade in biotech caused the Nasdaq Composite to slip behind the broader market in afternoon action. However, the Nasdaq ended comfortably above its flat line thanks to daylong strength in technology. The top-weighted sector received support from some of its largest components, which overshadowed losses among chipmakers. The PHLX Semiconductor Index lost 0.4% with Skyworks (SWKS 76.93, -2.59) leading the index lower despite a 4.9% spike in Broadcom (AVGO 179.09, +8.38). The stock was on the rise in reaction to upbeat earnings/guidance and a quarterly dividend hike to $1.02 per share from $0.51 per share. Another tech name, Finisar (FNSR 33.41, -0.72) retreated 2.1% despite above-consensus results and upbeat guidance.

The technology sector gained 4.2% for the week, ending only behind financials (week-to-date +4.8%). The economically-sensitive group started the day under pressure, but recovered to end little changed as the yield curve continued steepening. Treasuries retreated throughout the day, sending the 10-yr yield higher by six basis points to 2.47% while the 2-yr yield rose two basis points to 1.14%. The 2s10s spread expanded to a fresh 2016 high of 133 basis points.

The energy sector (+0.4%) ended with a modest gain, but could not catch up to crude oil, which spiked 1.3% to $51.49/bbl ahead of tomorrow's meeting in Vienna between OPEC and non-OPEC members.

Investor participation was below average as fewer than 900 million shares changed hands at the NYSE floor.

Economic data included Wholesale Inventories and Michigan Sentiment:

Wholesale inventories decreased 0.4% month-over-month in October, as expected, following an unrevised 0.1% decline in September. Wholesale sales were up 1.4% on the heels of an upwardly revised 0.4% increase in September

Inventory-to-sales ratio moved down to 1.30, which points to the potential for some improved pricing power if demand continues to pick up

The preliminary reading for the University of Michigan Consumer Sentiment Index for December checked in at 98.0 (Briefing.com consensus 94.3), up from the final November reading of 93.8

Consumers responded more frequently with the assertion that they had heard on the news that new economic policies will have a positive impact versus a negative impact

Monday's economic data will be limited to the November Treasury Budget statement, which will be released at 14:00 ET.

Russell 2000 +22.2% YTD

Dow Jones Industrial Average +13.4% YTD

S&P 500 +10.6% YTD

Nasdaq Composite +8.7% YTD

Week in Review: Records Smashed

The stock market enjoyed another strong week that lifted the major averages to new record highs. The S&P 500 rallied 3.1% while the Nasdaq Composite (+3.6%) outperformed as relative strength in technology offset relative weakness among biotechnology names.

Equity indices enjoyed an upbeat start to the week, rising alongside European stocks, even though the results of the constitutional reform referendum in Italy will lead to political uncertainty going forward. Italian citizens voted 59-41 to reject a proposal that would have reformed the country's Senate. Prime Minister Matteo Renzi offered his resignation, but Italian President Sergio Mattarella did not accept that resignation until after Wednesday's passage of a budget for 2017.

The next couple days were quiet in terms of news, but stocks continued pushing higher, keeping post-election trends intact. Biotechnology names took a tumble on Wednesday after President-elect Donald Trump said he wants to lower drug prices. However, the industry group rebounded over the next couple days, ending the week on a modestly higher note.

On Thursday, stocks climbed after the release of the latest policy statement from the European Central Bank. The ECB made no changes to its interest rate corridor, but announced that its asset purchase program will be extended until December. The news of an extension overshadowed the revelation that the pace of purchases will slow to EUR60 billion from EUR80 billion, starting in March. ECB President Mario Draghi said that the central bank will buy assets that have a lower yield than the current deposit rate, which was met with a slide in the euro.

Next week will be highlighted by the December FOMC meeting, which is expected to conclude with the first rate hike since last December. The market is all but certain that a rate hike will happen next week, evidenced by the fed funds futures market, which showed a 97.2% implied probability of a rate hike on Friday afternoon.