The Week In Review
The major U.S. indices closed the week on a mixed note as a sector rotation trade pitted the top-weighted technology sector (-2.7%) against the financials (+1.9%) and energy (+2.5%) groups. The tech-heavy Nasdaq (-1.8%) finished solidly lower while the S&P 500 (-0.1%) settled just a tick below its unchanged mark. Meanwhile, the Dow and the Russell 2000 outperformed, adding 0.4% apiece. For the week, the S&P 500 declined 0.3%.
Some of 2017's top-performers thus far, including Apple (AAPL 148.98, -6.01), Microsoft (MSFT 70.32, -1.63), Amazon (AMZN 978.31, -31.96), Alphabet (GOOGL 970.12, -34.16), and Facebook (FB 149.63, -5.08), fell to heavy selling pressure on Friday, posting losses between 2.3% and 3.9%. Chipmakers made matters even worse, evidenced by the 4.3% decline in the PHLX Semiconductor Index, with NVIDIA (NVDA 149.60, -10.34) showing relative weakness (-6.5%). Needless to say, the top-weighted technology group (-2.7%), which houses five of the six aforementioned companies, also settled solidly lower.
Typically, the stock market wouldn't have had a chance to overcome a 2.7% decline in the technology sector. However, the financials and energy groups, which have lagged thus far in 2017, kept losses in check with big gains of 1.9% and 2.5%, respectively. Their outperformance, when pitted against the stark underperformance of the information technology sector, makes it pretty evident that a sector rotation trade was in play.
The health care sector also put together a solid showing, adding 0.6%, with pharmaceutical names like Pfizer (PFE 32.77, +1.02) and Merck (MRK 64.39, +1.19) leading the advance; the two companies added 3.2% and 1.9%, respectively. Likewise, the lightly-weighted materials (+1.3%) and telecom services (+0.9%) groups outperformed while the remaining advancers--industrials and real estate--finished with gains of 0.4% apiece.
On the flip side, the consumer discretionary sector (-0.4%) underperformed as Amazon's tumble easily outweighed a positive performance from retailers. Like the energy and financial sectors, the SPDR S&P Retail ETF (XRT 41.04, +0.58) moved higher today, adding 1.4%, despite having struggling throughout the year. The consumer staples (-0.1%) and utilities (unch) spaces also finished in the red, but settled roughly in line with the broader market.
In Europe, UK Prime Minister Theresa May's Conservative Party unexpectedly lost its parliamentary majority in yesterday's snap election, reducing its seats to 318 from 331. The British pound (1.2735) dropped noticeably following the results, retreating 1.7% against the U.S. dollar, but European indices took the news in stride; the UK's FTSE jumped 1.0% while Germany's DAX and France's CAC added 0.8% and 0.7%, respectively.
Despite today's slip on Wall Street, safe-have assets experienced modest selling pressure. Gold dropped 0.6% to $1,272.50/ozt and U.S. Treasuries finished lower across the yield curve with the benchmark 10-yr yield climbing two basis points to 2.21%.
On the data front, investors received only one economic report--April Wholesale Inventories--on Friday:
- April Wholesale Inventories decreased 0.5% (Briefing.com consensus -0.1%). The prior month's reading was revised to 0.1% from 0.2%.
- The market doesn't typically pay much attention to this release since the full business inventories report is usually released a short time later.
Investors will not receive any economic data on Monday.
- Nasdaq Composite +15.3% YTD
- S&P 500 +8.6% YTD
- Dow Jones Industrial Average +7.6% YTD
- Russell 2000 +4.8% YTD
The stock market successfully hurdled several key macro events, including the testimony of former FBI Director James Comey, the latest policy decision from the European Central Bank, and the UK general election, only to get tripped up by tech stocks on Friday. The major averages settled the week mixed with the Dow adding 0.3% while the S&P 500 and the Nasdaq lost 0.3% and 1.6%, respectively.
Following back-to-back losses for the S&P 500 on Monday (-0.1%) and Tuesday (-0.3%), financials led the benchmark index to its first win of the week in the midweek session (+0.2%), even in the face of a bearish inventory report from the Energy Information Administration. Crude oil plunged nearly 5.0% after the EIA showed a build in both crude and gasoline inventories for the week ended June 2.
However, prepared remarks from Mr. James Comey, which were released to the public ahead of Thursday's testimony, were the focal point of Wednesday's session. The initial response to the statement was positive as market participants were seemingly heartened by the understanding that there wasn't any overt obstruction of justice claim against President Trump.
On Thursday, the Senate Intelligence Committee directly asked Mr. Comey if he thought Mr. Trump was trying to obstruct justice during their meeting on February 14 when he told Mr. Comey that he hoped the FBI could let go of the investigation of former National Security Adviser Michael Flynn. Mr. Comey responded that it wasn't for him to say and he would let others make that determination.
Investors breathed a sigh of relief, not only in reaction to Mr. Comey's testimony, but also in reaction to the ECB's decision to leave interest rates unchanged, as expected. With two of the week's three major events in the rearview mirror, the financial sector led the S&P 500 to its second victory of the week. However, gains were held in check as investors awaited the results of the UK general election.
Sure enough, the Brits threw the world for a loop, yet again, as Prime Minister Theresa May's Conservative Party lost its parliamentary majority. The pound dropped noticeably following the results while European markets took the news in stride. Meanwhile, U.S. indices ended the week lower as high-flying, mega-cap names like Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB), and semiconductor stocks, like NVIDIA (NVDA), came under some notable profit-taking pressure.
The top-weighted technology sector, which houses five of the six aforementioned companies, plunged 2.7% on Friday. However, the financials and energy sectors, which have been underperforming all year, helped keep the tech group's bearish influence in check, adding big gains of 1.9% and 2.5%, respectively, in what had the appearance of a sector rotation trade.
The fed funds futures market still points to the June FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 95.8%, unchanged from last week. The U.S. central bank will kick off its two-day meeting on Tuesday with the rate-hike decision crossing the wires on Wednesday afternoon at 14:00 ET.