The Week In Review

10/27/17

Facing its first weekly loss since the week ended September 8, the stock market rallied on Friday, underpinned by the latest batch of earnings, which featured impressive results from mega-cap names like Amazon (AMZN 1100.95, +128.52), Microsoft (MSFT 83.81, +5.05), and Alphabet (GOOG 1019.27, +46.71). The three companies finished at new record highs, as did the S&P 500 (+0.8%) and the tech-heavy Nasdaq (+2.2%). The Dow (+0.1%) also moved higher, but finished a ways behind its peers due to select underperformers.

Friday's advance carried the major indices into positive territory for the week. The Nasdaq was the top performer this week, adding 1.1%, while the Dow and the S&P 500 finished with weekly gains of 0.5% and 0.2%, respectively.

The S&P 500's technology sector easily finished Friday at the top of the sector standings, climbing 2.9%. Microsoft and Alphabet deserved much of the credit for the sector's advance, as they jumped 6.4% and 4.8%, respectively, after reporting better-than-expected earnings and revenues. However, Intel (INTC 44.40, +3.05) also contributed--climbing 7.4%--after beating both top and bottom line estimates and raising its guidance for the fiscal year, as did fellow mega caps Apple (AAPL 163.05, +5.64) and Facebook (FB 177.88, +7.25), which added 3.6% and 4.3%, respectively.

Apple was helped not only by the positive sentiment surrounding Microsoft's and Alphabet's earnings, but also by the company's announcement that its new iPhone X sold out in a matter of minutes amid "off the charts" demand. Both Apple and Facebook will report earnings in the middle of next week.

As for Amazon, the internet retail giant surged 13.2% on better-than-expected earnings and revenues, pinning the consumer discretionary sector (+1.6%) right behind technology at the top of the leaderboard. Outside of the technology and consumer discretionary spaces, which were obviously juiced by the aforementioned companies, no group finished with a gain of more than 0.6%.

The energy sector (+0.2%) benefited from an increase in the price of crude oil, which climbed 2.4% to $53.91/bbl, but was weighed down by Chevron (CVX 113.54, -4.90), which dropped 4.1% despite reporting above-consensus earnings and revenues. On a related note, Exxon Mobil (XOM 83.71, +0.24) ticked up 0.3% after beating bottom-line estimates.

Similar to Chevron, pharmaceutical giant Merck (MRK 58.24, -3.75) dropped 6.1%, hitting a fresh 2017 low, despite beating earnings estimates and raising its guidance for the fiscal year. However, the company did come up short on revenues. The health care sector (unch) finished comfortably behind the broader market.

The consumer staples sector (-0.9%) was the weakest group on Friday, with CVS Health (CVS 68.99, -4.32) leading the retreat. The pharmacy retailer declined 5.9% following unconfirmed Thursday reports that it has made an offer to acquire managed health care company Aetna (AET 173.12, -5.48) for more than $200 per share.

Outside of the equity market, U.S. Treasuries ended the week on a higher note, trimming some of their losses from earlier in the week. The Treasury market began the day in the red, but a Bloomberg report that President Trump is leaning towards appointing Fed Governor Jerome Powell as the next Fed Chair helped turn the tide. The yield on the benchmark 10-yr Treasury note slipped three basis points to 2.42%.

Elsewhere, Spain's Prime Minister Mariano Rajoy invoked emergency powers on Friday in an attempt to restore order after Catalonia's parliament declared independence from the Spanish central government. The Catalonia people voted for independence earlier this month.

Reviewing Friday's economic data, which included the advance third quarter GDP report and the final reading of the University of Michigan Consumer Sentiment Index for October:

Advance third quarter GDP pointed to an expansion of 3.0%, while the Briefing.com consensus expected a reading of 2.4%.

The headline surprise was driven by the change in private inventories, which contributed 0.7 percentage points. Real final sales, which exclude the change in private inventories, decelerated to 2.3% from 2.9% in the second quarter on some soft consumer spending activity.

Granted the hurricanes created some temporary growth headwinds, but when the layers are peeled back, the key takeaway is that U.S. economic activity is proceeding largely at the same ho-hum pace, evidenced by the prior 12-quarter average of 2.4% for real final sales.

The final reading of the University of Michigan Consumer Sentiment Index for October declined to 100.7 (Briefing.com consensus 101.0) from 101.1 in the preliminary reading.

Despite the dip, the index remains at its highest monthly level since the start of 2004 and it stands above 100.0 for only the second time since the end of the record 1990's expansion.

On Monday, investors will receive September Personal Income, Personal Spending, and core PCE Prices--all of which will be released at 8:30 ET.

Nasdaq Composite +24.5% YTD

Dow Jones Industrial Average +18.6% YTD

S&P 500 +15.3% YTD

Russell 2000 +11.1% YTD

Week In Review: Tech Earnings Provide Late Boost

Stocks began the week on a lower note as investors cashed in on last week's record highs, but reclaimed their losses on Friday, thanks to an impressive batch of technology earnings. The major indices finished the week in positive territory, with the Nasdaq, the Dow, and the S&P 500 adding 1.1%, 0.5%, and 0.2%, respectively. The S&P 500 and the Nasdaq settled Friday at new all-time highs.

The S&P 500's technology sector (+2.9%) kept the broader market afloat with little help from its peers, easily settling at the top of the sector standings. The group was underpinned by Microsoft (MSFT), Alphabet (GOOG), and Intel (INTC), which added between 4.8% and 7.4% on Friday after reporting better-than-expected earnings and revenues for the third quarter.

Amazon (AMZN) also surged on Friday, jumping 13.2%, after beating both top and bottom line estimates. The company's positive performance boosted the consumer discretionary sector, which finished the week with a gain of 1.1%.

On the downside, the health care sector (-2.1%) struggled this week, with biotechnology names leading the retreat. Celgene (CELG) showed particular weakness, ending the week lower by 19.1%, after missing revenue estimates for the third quarter and lowering its 2020 long-term financial targets on Thursday.

The consumer staples sector also lagged, moving lower by 1.5%. Within the group, CVS Health (CVS) plunged 9.8% following unconfirmed reports that the pharmacy retailer has made an offer to acquire managed health care company Aetna (AET) for more than $200 per share. Aetna shares ended the week higher by 7.6%.

On the data front, the advance GDP report showed that the U.S. economy increased at annual rate of 3.0% in the third quarter (Briefing.com consensus 2.4%), marking the second straight quarter the annualized rate has been 3.0% or higher. However, the headline number was inflated by a change in inventories, while real final sales decelerated to 2.3% from 2.9% in Q2.

In other words, the U.S. economy is proceeding largely at the same ho-hum pace.

Elsewhere, speculation as to who will become the next Fed Chair continued this week, and it appears increasingly likely that current Fed Chair Janet Yellen will be replaced by either Fed Governor Jerome Powell or Stanford University economist John Taylor. Bloomberg reported on Friday that President Trump is leaning toward Mr. Powell.

Following this week's events, the CME FedWatch Tool places the chances of a December rate hike at 99.9%, up from 93.1% last week.