The Week In Review

7/21/17

 The major averages rode a late-afternoon rally to fresh session highs, but, unfortunately, it just wasn't quite enough to get them into the green. The Nasdaq (unch) finished just a tick below its flat line, breaking its ten-session winning streak. The S&P 500 (unch) settled in line with the Nasdaq while the Dow (-0.2%) and the Russell 2000 (-0.5%) underperformed. For the week, the S&P 500 ended higher by 0.5%.

Five of eleven sectors settled Friday's session in negative territory, but losses were modest for the most part. The energy sector registered the widest decline, dropping 0.9%, after reports of increased OPEC oil production sent crude oil into negative territory. The energy component lost 2.7%, finishing at a price of $45.64/bbl.

Like energy, the industrial sector settled below the broader market, slipping 0.2%, with its largest component by market cap--General Electric (GE 25.91, -0.78)--leading the retreat. GE shares tumbled 2.9%, to their worst level since October 2015, after disappointing organic revenue growth for the company's industrial segment overshadowed better than expected top and bottom lines.

Microsoft (MSFT 73.79, -0.43) also declined after beating top and bottom line estimates, losing 0.6%. However, the company did enjoy a ten-day rally in front of the release, suggesting that its upbeat earnings report was priced in ahead of time. Conversely, Visa (V 99.60, +1.49) climbed 1.5%, to a new all-time high, after reporting above-consensus earnings and revenues, in addition to raising its guidance for the fiscal year.

The top-weighted technology sector (-0.1%), which houses both Microsoft and Visa, managed to settle roughly in line with the broader market. However, in addition to MSFT's slide, the tech space had to overcome a negative performance from chipmakers in order to do so; the PHLX Semiconductor Index dropped 0.8% amid broad weakness.

Conversely, biotech stocks rallied on Friday, pushing the iShares Nasdaq Biotechnology ETF (IBB 324.88, +1.96) higher by 0.6%. However, the health care sector wasn't able to finish ahead of the broader market, ending the day lower by 0.1%.

The influential financial space (unch) outperformed for much of the day, but eventually slipped back into the middle of the sector standings. Capital One (COF 87.94, +6.93) was the sector's top-performing component, jumping 8.6%, after the company reported better than expected earnings.

Countercyclical sectors like utilities (+0.8%), consumer staples (+0.3%), and telecom services (unch) settled near the top of the leaderboard. The rate-sensitive utilities group benefited from a rally in the Treasury market that left the 10-yr yield (2.23%) and the 2-yr yield (1.34%) lower by two basis points apiece.

Meanwhile, on the cyclical side, the consumer discretionary (+0.1%), real estate (+0.2%), and materials (unch) groups also outperformed. Netflix (NFLX 188.54, +4.94) led consumer discretionary's advance, jumping 2.7%, to end the week higher by 17.0%. The company surged 13.5% on Tuesday after reporting a much larger than expected increase in subscribers.

In the currency market, the U.S. Dollar Index (93.74, -0.34) slipped another 0.4% on Friday to end the week with a loss of 1.3%. Both the euro (1.1667) and the yen (111.06) climbed against the greenback, adding 0.3% and 0.8%, respectively.

Investors did not receive any notable economic data on Friday.

On Monday, market participants will receive just one piece of economic data--June Existing Home Sales. The report will be released at 10:00 ET.

Nasdaq Composite +18.7% YTD

S&P 500 +10.4% YTD

Dow Jones Industrial Average +9.2% YTD

Russell 2000 +5.8% YTD

Week In Review: Record Highs

Equities kept chugging along this week, underpinned by a generally solid batch of earnings reports and the notion that monetary policy will remain accommodative for the foreseeable future. The S&P 500 ended the week higher for the third-consecutive time, adding 0.5%, but the real star was the Nasdaq, which climbed 1.2% and settled at a new record high for three sessions in a row. The Dow lagged this week, finishing with a small loss of 0.3%.

The stock market kicked off the week with a rather uneventful performance on Monday that left the major averages little changed. However, activity picked up on Tuesday as the Nasdaq climbed to a new record high for the first time since June 8. Netflix (NFLX) headlined the earnings front, surging 13.5%, after adding a surprisingly-large number of new subscribers in the second quarter.

Buyers were in the driver's seat during the midweek session, pushing the Nasdaq, the S&P 500, the Dow, and the small-cap Russell 2000 to new all-time highs. Each of the S&P 500's 11 sectors finished in the green with the energy group setting the pace following an upbeat EIA crude inventory report. Conversely, financials and transports struggled once again, shrugging off some relatively upbeat earnings reports.

However, it's important to note that the S&P 500's financial sector and the Dow Jones Transportation Average both had bullish, multi-week runs ahead of earnings season, making it difficult for their components to advance on upbeat results alone.

On Thursday, monetary policy was the focal point as investors digested the latest policy decisions from the European Central Bank and the Bank of Japan. Both central banks decided to leave interest rates unchanged and sounded dovish about future accommodation. However, the euro rallied against the U.S. dollar nonetheless as ECB President Mario Draghi failed to dispel the notion that the ECB might soon announce a tapering of its asset purchase program.

The Nasdaq eked out another record close, extending its winning streak to ten sessions in a row, while the S&P 500 and the Dow finished just shy of their unchanged marks. The telecom services sector was the top-performing group--which has been a rarity this year--following an upbeat earnings report from T-Mobile US (TMUS). However, ironically, TMUS shares finished solidly lower.

Equity indices ended the week with small losses on Friday. General Electric (GE) weighed on the industrial sector, dropping 2.9%, after reporting disappointing organic revenue growth for its industrial segment. Microsoft (MSFT) also faced selling pressure as its better than expected earnings and revenues failed to fully justify its preceding ten-day rally. Energy was the worst-performing sector following news of increased OPEC production, which sent crude oil on a 2.7% plunge.

The fed funds futures market still points to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 52.0%, up slightly from last week's 50.6%. The Fed will release its latest policy statement on Wednesday afternoon at 14:00 ET.