The Week In Review

2/24/17

The stock market held a modest loss throughout the majority of Friday's session, but the cautious sentiment was just an illusion as bulls bought the dip and pushed the stock market into the green during the final minutes of the session. The S&P 500 (+0.2%) and the Nasdaq (+0.2%) eked out slim gains while the Dow (+0.1%) finished just above its flat line to record its 11th consecutive record close.

Outside of an opening dip, today's session was rather range-bound as the market cut its initial loss in half and traded in sideways fashion until an afternoon charge into the green.

Equity indices did show some life around noon following a report that Gary Cohn, who is the chief economic adviser to President Trump, indicated that the White House does not support the House GOP version of a border adjustment tax. This was construed as a positive for retailers given that they import so much of their merchandise for sale in the United States; hence, their earnings prospects would be likely to suffer.

Retail stocks surged to new highs following the initial report, but gave back a portion of those gains after the White House denied the report's validity, saying Mr. Cohn's comment was taken out of context. Still, the SPDR S&P 500 Retail ETF (XRT 43.73, +0.63) closed Friday 1.5% higher as earnings news provided a sturdy backstop.

Nordstrom (JWN 46.46, +2.52) jumped 5.7% after its better than expected earnings overshadowed a miss on revenues and below-consensus guidance. Foot Locker (FL 75.01, +6.43) and Gap (GPS 24.70, +0.73) also finished higher, adding 9.4% and 3.1%, respectively. FL's strength stemmed from its better than expected earnings while GPS overcame below-consensus earnings guidance with an otherwise in-line report.

Consumer discretionary (+0.4%) and consumer staples (+0.4%) rode the bullish retail sentiment to finish Friday higher.

The industrial sector (+0.5%) closed with a similar gain, drawing strength from aerospace & defense names after President Trump vowed to implement one of the "greatest military buildups in American history" on Friday morning.

On the downside, financials (-0.8%) and energy (-0.9%) finished the day at the bottom of the leaderboard. Financials saw some pressure amid the continued uncertainty around the scope and the timing of a tax reform plan while energy's downtick was influenced crude oil's 0.9% slide. The energy component closed the week at $53.97/bbl.

U.S. Treasuries finished the week on a positive note, closing Friday near their three-month highs. The benchmark 10-yr yield finished six basis points lower at 2.31%.

The rate-sensitive utilities (+1.4%) sector closed at the top of the day's leaderboard as investors relished the slip in interest rates. The remaining sectors--technology, materials, health care, telecom services, and real estate--closed with gains between 0.2% and 0.7%.

Today's economic data included January New Home Sales and the final reading of the University of Michigan Sentiment Index for February:

New Home Sales in January hit an annualized rate of 555,000, which was above the revised December rate of 535,000 (from 536,000), and less than the 566,000 that was expected by the Briefing.com consensus.

The key takeaway from the report is that high prices continue to impede stronger sales activity at the lower end of the new home market. That point is borne out in the fact that homes priced $299,999 or less accounted for 44% of new homes sold in January 2017 versus 53% in January 2016.

The final reading of the University of Michigan Consumer Sentiment Index for February rose to 96.3 (Briefing.com consensus 95.8) from 95.7 in the preliminary reading.

The key takeaway from the report is that overall consumer confidence is high, yet there are clear splits along party lines with respect to the economic outlook. That understanding, it was noted, creates an expectation that there will be greater volatility and discretionary spending differences across subgroups.

On Monday, investors will receive January Durable Orders (Briefing.com consensus 1.8%) and January Pending Home Sales (Briefing.com consensus 0.9%). The two reports will cross the wires at 8:30 am ET and 10:00 am ET, respectively. 

Nasdaq Composite +8.6% YTD

S&P 500 +5.7% YTD

Dow Jones Industrial Average +5.4% YTD

Russell 2000 +2.8% YTD

Week in Review: Friday Uptick Helps Secure Fifth Consecutive Weekly Gain

The stock market appeared to be in jeopardy of recording its first down week in a month, but a recovery on Friday afternoon helped the S&P 500 add 0.7% for the week, extending its first quarter gain to 5.7%.

Equity indices motored higher to start the week, but investor sentiment soured a bit on Thursday, after Axios reported that Republican lawmakers are likely to delay a decision on infrastructure spending until 2018, giving Congress time to focus on tax and health care reform in 2017. The news weighed on construction and engineering names with Caterpillar (CAT) falling 3.3% during the final two sessions of the week.

However, the overall stock market took the news in stride, which was impressive, considering pro-growth policies were cited for the post-election charge that lifted the S&P 500 to a fresh record. The market did see some selling on Friday morning, but dip buyers helped the benchmark index turn positive by the close.

The past week was very quiet on the economic front, but investors did receive the most recent policy minutes from the Federal Open Market Committee. The minutes acknowledged that a rate hike will be in order fairly soon, if incoming data on jobs and inflation remains in line with expectations.

It is worth noting that some members of the FOMC expressed concern that low volatility in equity markets is inconsistent with considerable uncertainty attached to the outlook for changes to the fiscal landscape. The CBOE Volatility Index (VIX) held its ground in the 11.50% area, ending the week well below its 200-day moving average (13.80).

Rate hike expectations saw limited movement during the past week. The implied likelihood of a hike in May ticked up to 50.4% from last week's 44.1% while the implied probability of a rate hike in June slipped to 66.5% from last Friday's 69.9%.