The Week In Review

2/10/17

Equity indices closed the week on an upbeat note, climbing to fresh record highs for the second consecutive day. The Dow (+0.5%) led the advance while the Nasdaq (+0.3%) finished just behind the S&P 500 (+0.4%).

The optimism surrounding today's session had its roots in President Trump's upcoming tax-related announcement. On Thursday, the president promised the unveiling of a "phenomenal" tax plan in the coming weeks, but didn't provide any specific details on what the plan will include. Still, it was enough to push the stock market to record highs on Thursday and then again on Friday.

It is worth noting that Federal Reserve Governor Daniel Tarullo announced on Friday that he will be resigning from his position, effective April 5. As a result, President Trump will have the opportunity to fill three of the seven seats on the Federal Reserve Board of Governors.

On the earnings front, NVIDIA's (NVDA 113.62, -2.76) earnings report lived up to lofty expectations that accompanied the company's massive 55.8% gain in the fourth quarter. However, the stock fell 2.4% on Friday as better than expected top and bottom lines and above-consensus first quarter guidance was met with a sell-the-news response from investors. In addition to Apple's (AAPL 132.12, -0.30) lackluster performance, the response to NVIDIA's earnings report put a lid on the top-weighted technology sector's (+0.2%) gain.

Elsewhere on the earnings front, Skechers (SKX 27.78, +4.50) and Columbia Sportswear (COLM 59.83, +6.54) spiked 19.3% and 12.3%, respectively, following the release of their quarterly reports. SKX's jump can be attributed to its above-consensus revenues and upbeat Q1 revenue guidance, whereas COLM's surge was fueled by better than expected earnings.

However, Yelp (YELP 35.83, -5.66) didn't share the good fortune of its consumer discretionary peers. The company plunged 13.6% following worse than expected first quarter revenue guidance. The consumer discretionary space took in the positive and brushed off the negative to close 0.5% higher.

Energy (+0.8%) also finished Friday's session solidly higher thanks to the uptick in crude oil; the commodity finished its trading day up 0.9% at $53.85/bbl. WTI crude's third consecutive advance followed a bullish International Energy Agency report, which showed 90.0% OPEC compliance with agreed-upon production cuts and an increased oil demand growth forecast for 2017.

On the countercyclical side, consumer staples (-0.1%) finished at the bottom of the day's leaderboard, while the influential health care space (+0.1%) finished just a step ahead. Health care overcame weakness in biotech names with a 1.0% jump in the sector's largest component by market cap, Johnson & Johnson (JNJ 115.24, +1.16).

JNJ's uptick was the result of a positive development involving the European Medicines Agency. As a reminder, Johnson & Johnson agreed to acquire Actelion in late January for roughly $30 billion. The EMA stated that Actelion's Uptravi may continue to be used, after the agency reviewed the safety of the drug following the deaths of five patients in France who were taking it.

In the Treasury market, government-issued debt extended Thursday's downtick with minor losses on Friday. The benchmark 10-yr yield closed two basis points higher at 2.41%.

Today's economic data included January Export/Import Prices, the preliminary Michigan Sentiment Index for February, and the January Treasury Budget:

Import prices excluding oil declined 0.2% in January after ticking down 0.1% in December (revised from -0.2%). Export prices excluding agriculture increased 0.1% in January after rising 0.4% in December.

The key takeaway from the report is that nonfuel import prices remain in check, but nonetheless, inflation concerns could get dialed up just a bit on the notion of a potential pass-through effect should higher fuel prices persist.

The preliminary reading of the University of Michigan Consumer Sentiment Index for February declined to 95.7 (Briefing.com consensus 97.9) from 98.5 in the prior month.

While consumer sentiment faded, the key takeaway is that it is still high, as there have only been five higher readings in the past decade.

The Treasury Budget for January showed a deficit of $51.3 billion versus a deficit of $55.2 billion for January 2016. The Treasury Budget data is not seasonally adjusted, so the January deficit cannot be compared to the $27.5 billion deficit registered in December.

Investors will not receive any economic data on Monday.

Nasdaq Composite +6.5% YTD

S&P 500 +3.5% YTD

Dow Jones Industrial Average +2.6% YTD

Russell 2000 +2.3% YTD

Week in Review: Evergreen Trade Remains Alive

The stock market secured its third consecutive weekly advance with the S&P 500 rising 0.8%. The benchmark index posted gains in four of the first six weeks of 2016 while the two down weeks in the middle of January shaved a whopping 0.25% off the index.

The first half of the week featured sideways action just below record highs from late January, but the market snapped out of that range on Thursday after comments from President Donald Trump reminded investors that tax reform remains a priority. Mr. Trump announced that something "phenomenal" on the tax front would be announced in the next two or three weeks. The comments, which did not include specific details, were enough to encourage investors, who were starting to worry that a major campaign promise may go unaddressed.

Market participants received another heavy dose of quarterly reports, but the earnings had more influence on individual stocks than the broader market. At the end of the week, more than 71.0% of S&P 500 components had reported their results, generating blended earnings growth of 4.9%, according to FactSet. This represented a modest shortfall relative to the estimate from the end of September, which called for growth of 5.2%.

The past week was quiet on the economic front, leaving investors with just a few second-tier reports to digest. The preliminary reading of the Michigan Sentiment index for February declined to 95.7 from 98.5, almost entirely due to a pullback in the Expectations Index. That index fell to 85.7 from 90.3 while the Current Economic Conditions Index ticked down to 111.2 from 111.3.

Rate hike expectations barely budged on a week-over-week basis. The fed funds futures market ended the week showing a 67.3% implied probability of a rate hike in June, up from last week's 63.5%, but down slightly from 69.2% two weeks ago.