For the week ending 10-13-17
Stocks continued their advance into record territory, as the Dow Jones and S&P 500 marked their fifth consecutive weekly gain. The week brought the first releases of major third-quarter earnings reports, with JPMorgan Chase and Citigroup heading the way on Thursday, followed by Bank of America and Wells Fargo on Friday. With the exception of Wells Fargo the banks did better than forecast on earnings and revenue but, as a group, their stock prices were little changed after the releases. In other corporate news, Wal-Mart shares surged after the retail giant announced a massive share repurchase program and predicted a strong rise in online sales. Wal-Mart is emerging as one of the few established retailers with the size and clout to take on Amazon in the e-commerce space.
Even with the onset of earnings season, the tumultuous political environment continued to play a large role in driving sentiment. Health care services stocks stumbled a bit this week as President Trump signed an executive order to develop the framework to loosen regulations to allow less comprehensive and cheaper insurance plans. The administration also plans to stop providing subsidies to insurers in the state ACA insurance exchanges.
A series of positive economic reports may have helped compensate for the disruption in Washington, allowing the broader market to rise. Initial jobless claims during the previous week fell sharply, as the impact of Hurricanes Harvey, Irma, and Maria on the labor market appeared to be dissipating. Retail sales also held steady in September, reflecting further resilience in the face of the natural disasters. In fact, consumers entered October feeling better about the economy than they had in 13 years, according to the University of Michigan’s gauge of consumer sentiment, which registered 101.1 on expectations of 95.4.
The hurricanes did have an impact on September headline inflation data as gasoline prices jumped following the shutdown of Gulf Coast refineries and food prices rose temporarily due to shipping delays. Core prices (excluding food and energy) actually moderated somewhat in September, rising just 0.1 percent. Recent weakness in monthly core inflation data has drifted further away from the Federal Reserve’s annual inflation target of two percent, but Fed Chair Janet Yellen recently stated she believes the slowdown in inflation is a transitory phenomenon and insisted that the Fed is still on its path of gradual interest rate increases, with the next rate hike likely to be in December. Some economists remain concerned that the current level of interest rates is too low and is causing an artificial rise in asset values that may leave them susceptible to a disruptive correction.
Earnings season ramps up this week with big names like Netflix, Goldman Sachs, Johnson & Johnson, Honeywell and Schlumberger reporting earnings and revenue. Analysts are expecting earnings to grow 2.1% from this time last year and return to their double-digit growth in the next quarter and the first half of 2018.
For the week, the Dow Jones rose 98 points to 22,872 (0.4%); the NASDAQ was up 16 points to 6,606 (0.2%); and the S&P 500 added 4 points to 2,553 (0.2%)
Oil rose $2.50 to $51.50/bbl. Gold gained $28 to $1,307
The yield on the 10 yr. Treasury fell back 0.1 on weaker inflation data to 2.3%
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Disclaimer: It is worth noting that the opinions in this commentary are Christian Peterson’s and may occasionally vary somewhat from the opinions of the Winch Financial investment team as a whole. Client recognizes that any opinions or analysis described in this commentary involve the Advisor’s judgment and good faith and do not constitute investment advice. All recommendations or observations are subject to various market, currency, economic, political and business risks. Client recognizes that no party to this alert has made any guarantee, either oral or written, that Client’s investment objectives will be achieved. Advisor shall not be liable for any action performed or omitted to be performed or for any errors of judgment or mistake, except in the case of Advisor’s gross negligence, willful misconduct, or violation of applicable law. Advisor shall not be responsible for any loss incurred by reason of any act or omission of Client, custodians, broker-dealers, or any other third party. Nothing in this commentary shall constitute a waiver or limitation of any rights that Client may have under applicable state or federal law, including without limitation the state and federal securities laws.