The Week In Review

8/18/17

The major averages finished in negative territory for the second day in a row on Friday, adding to their losses for the week. The Dow led the retreat, losing 0.4%, while the S&P 500 and the Nasdaq finished lower by 0.2% and 0.1%, respectively. For the week, the Dow, the S&P 500, and the Nasdaq finished with respective losses of 0.8%, 0.7%, and 0.6%.

Equities opened modestly lower, but retraced those early-morning losses and moved into positive territory following an Axios report that suggested White House Chief Strategist Steve Bannon would be let go--and indeed he was with the official notice crossing the wires in the afternoon.

Mr. Bannon has been described as perhaps the most polarizing figure within President Trump's inner circle, so it could be argued that his departure will make it easier for Mr. Trump to find common ground with Congress. However, it could also be argued that the headline simply provided a good excuse for some buying following Thursday's big sell off.

Regardless, the bears cut into the modest gains on Friday afternoon and eventually dragged the major averages into the red. Only three sectors--energy, utilities, and materials--finished in the green.

The utilities and energy spaces finished at the top of the day's leaderboard, adding 0.6% apiece. Crude oil underpinned the energy group, jumping 3.2% to $48.57/bbl. The commodity benefited from rumors that one of the largest oil refineries in the U.S. has been shut down. Despite Friday's advance, crude oil still finished 0.5% lower for the week.

As for the remaining sectors, materials (+0.1%) eked out a small victory while financials (-0.1%), consumer discretionary (-0.5%), industrials (-0.3%), technology (-0.1%), health care (-0.4%), consumer staples (-0.4%), telecom services (-0.5%), and real estate (-0.7%) finished in the red.

In corporate news, Foot Locker (FL 34.38, -13.32) plunged 27.9% to its lowest level in nearly four years after the shoe apparel retailer missed both top and bottom line estimates and reported far worse-than-expected same-store sales. Athletic merchandise suppliers like Nike (NKE 54.95, -2.51) and Under Armour (UAA 17.12, -0.69) also sold off, dropping 4.4% and 3.9%, respectively.

Deere (DE 117.31, -6.67) also finished solidly lower, losing 5.4%, after reporting better than expected earnings but worse than expected revenues. Conversely, Ross Stores (ROST 59.02, +5.69) jumped 10.7% after reporting better than expected earnings and revenues.

U.S. Treasuries finished Friday on a mixed note after backing off their morning highs; the 2-yr yield climbed one basis point to 1.31% while the 10-yr yield dropped one basis point to 2.19%.

Reviewing Friday's economic data, which was limited to the preliminary reading of the University of Michigan Consumer Sentiment Index for August:

The preliminary reading of the University of Michigan Consumer Sentiment Index for August rose to 97.6 (Briefing.com consensus 94.0) from 93.4 in July.

The August increase was fueled by a rebound in the Expectations Index, which returned to levels from the start of 2017.

Investors will not receive any economic data on Monday.

Nasdaq Composite +15.5% YTD

Dow Jones Industrial Average +9.7% YTD

S&P 500 +8.3% YTD

Russell 2000 +0.1% YTD

Week In Review: Playing Politics

Wall Street had another disappointing week, its second in a row, as investors continued to drag the major U.S. indices from their all-time highs. The Dow, the S&P 500, and the Nasdaq finished with losses of 0.8%, 0.7%, and 0.6%, respectively, while the small-cap Russell 2000 underperformed (-1.2%), dropping to its flat line for the year.

Five sectors settled the week in the green--utilities (+1.3%), materials (+0.4%), real estate (+0.2%), consumer staples (+0.1%), and technology (unch)--while six groups finished in the red--energy (-2.7%), telecom services (-1.8%), consumer discretionary (-1.8%), industrials (-1.1%), health care (-0.8%), and financials (-0.5%).

The week's most notable headlines in chronological order:

Monday--S&P 500 +1.0%, Nasdaq +1.3%, Dow +0.6%

Investors breathed a sigh of relief after a quiet weekend in regards to North Korea

Tuesday--S&P 500 -0.1%, Nasdaq -0.1%, Dow unch

North Korea decided against executing last week's threat to launch missiles towards the U.S. territory of Guam

July Retail Sales came in hotter than expected (+0.6% actual vs +0.3% Briefing.com consensus)

Wednesday--S&P 500 +0.1%, Nasdaq +0.2%, Dow +0.1%

President Trump ended his Manufacturing Council and Strategy & Policy Forum following the departure of several CEOs

The FOMC minutes from the July meeting showed concerns about softer than expected inflation readings

Thursday--S&P 500 -1.5%, Nasdaq -1.9%, Dow -1.2%

Rumors that NEC Director Gary Cohn plans to resign circulated; the White House said the rumors are false

Terrorist attacks in Spain killed 14 and left more than 100 injured

Friday--S&P 500 -0.2%, Nasdaq -0.1%, Dow -0.4%

President Trump fired White House Chief Strategist Steve Bannon

The SPDR S&P Retail ETF (XRT) settled at its worst level since February 2016 following this week's batch of earnings

Thursday's session was perhaps the most notable of the week as the S&P 500 registered its second-worst performance of the year. The major indices opened Thursday's session with modest losses, but moved deeper into negative territory following a rumor that President Trump's chief economic advisor Gary Cohn plans to resign from his position following the president's controversial comments regarding last weekend's events in Charlottesville, VA. The White House later declared that the rumor was "100% false", but it did little to reverse the market's downward trend.

True or not, the rumor didn't do much to dispel the notion that working with the president could be a political liability, especially considering that it came on the heels of Mr. Trump's Wednesday decision to disband his Manufacturing Council and Strategy & Policy Forum in response to several CEOs leaving the two groups. The chief executives cited Mr. Trump's controversial Charlottesville comments as the reason for their departures. If Republicans in Congress start distancing themselves from Mr. Trump, it will be that much harder for him to push through his pro-growth agenda.

However, those concerns eased a bit on Friday after President Trump fired White House Chief Strategist Steve Bannon, a decision that was well received by the market. Mr. Bannon was the chief executive of Mr. Trump's presidential campaign and has been described as perhaps the most polarizing figure within President Trump's inner circle. Therefore, in the absence of Mr. Bannon, the thinking is that the president might dial back his rhetoric a bit, making it easier for the White House to work with Congress in passing the president's pro-growth agenda.

Following this week's events, the fed funds futures market now points to the March 2018 FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 51.5%. Last week, the market expected the next rate hike to occur in June 2018 with an implied probability of 57.5%.