by Eli Wright
After spending much of last week in narrow, choppy trading the US dollar as well as US equities, were boosted on Thursday by President Trump's statement in a meeting with airline executives that his goal of "lowering the overall tax burden on American business...[is] way ahead of schedule." The President indicated that within the next few weeks the specifics of his tax overhaul would be announced.
Markets also appeared to approve of Trump’s Thursday evening phone call with Chinese President Xi Jinping, during which Mr. Trump agreed to uphold the US's 'One China' policy, a clear reversal on threats the then President-elect made in December to recognize Taiwan diplomatically.
The US Dollar Index rose one percent to close the week above the 100 benchmark, at 100.71. The greenback may have already bottomed, and could resume its uptrend this coming week, especially if this coming week's economic releases including CPI, Retail Sales and Industrial Production come in stronger than expected.
On Friday all three major Wall Street indices pushed further into record-high territory, albeit on lighter than normal volumes. On the week, the Dow gained one percent, to 20,269.37; the S&P 500 rose 0.8%, to 2,316.10; and the NASDAQ closed 1.2% higher, at 5,734.13. The Russell 2000 had a good finish as well, breaking out from the sideways range its been trading in since early December. Heavier volume in the coming week could signal profit-taking before low volume buying resumes on dips.
Oil rises on OPEC cuts
Despite US weekly crude inventories rising by a surprising 13.83M, significantly more than the 2.53M expected, crude oil prices rose 1.2% at the end of the week to $53.87. The strong finish was due, in part, to a report released on Friday by the International Energy Agency (IEA) indicating that during January there has been 90% compliance among OPEC members to the production cuts that were promised at the end of November. Though not all members were complaint, Saudi Arabia, Qatar and Angola each cut more than promised.
Prices will continue to fluctuate based on falling OPEC and rising US production, though some analysts believe technicals are signaling that the longer-term trend is down. In the shorter term, prices could rise to $55.25. To the downside, we could see $52 challenged.
Gold bounces higher
Gold prices rose 1.1% on the week, to $1,235 and there’s still room for the yellow metal to run to $1,270 and beyond.
That said, it must be noted that gold saw most of its weekly gains during the first three days of the past week, when markets were still nervously watching politics. If the dollar continues its upward trend and risk-on sentiment returns as US equities break new record highs, gold could correct to $1,215.
Copper price boosted on China growth, strike
Copper prices continued moving higher as the week ended, boosted by strong trade figures out of China showing that both imports and exports increased YoY. Earlier in the week, the red metal moved higher on news that workers at BHP Billiton's (NYSE:BHP) Chilean Escondida mine were on strike. Escondida is the world’s largest copper mine, responsible for five percent of global copper output. While there is always the chance that support could get tested at $2.053, the red metal could rise to $3.40.
Earnings season: Tech and Financial sectors lead in 2017
By now, nearly 70% of companies on the S&P 500 have reported quarterly earnings, on pace for 8.4% YoY growth. Leading the S&P thus far is the financial sector, which has seen earnings increase more than 20%. Looking ahead, deregulation could help this sector even more.
The technology sector has also come out ahead, with earnings growth of 10.9%. Energy, Industrials, and telecom are the lag.
Biggest Stock Market Gainers Last Week
The S&P's top ten gainers for the week were:
Hasbro (NASDAQ:HAS) shares surged 18.15% after the toy maker beat estimates and reported Q4 2016 earnings per share of $1.64 on $1.63 billion in revenue, an 11% increase YoY. The boost was in large part thanks to sales from their girls category—which includes the company's Disney Princes toy line, whose rights were owned by rival Mattel (NASDAQ:MAT) until 2014. Sales in this segment jumped 52% during the quarter.
ActivisionBlizzard (NASDAQ:ATVI), which publishes such popular video games as Call of Duty, World of Warcraft, and Overwatch, also jumped more than 18%, after reporting Q4 2016 EPS of $0.92 on revenue of $2.45B, both of which handily beat expectations. The firm raised its quarterly dividend from $0.26 to $0.30, and also announced a $1 billion share buy-back plan.
Arconic (NYSE:ARNC), the Alcoa (NYSE:NYSE:AA) spinoff that supplies engineered products to aerospace and automotive markets, built on its prior week's 14.6% upward momentum. After last week's Q4 2016 earnings report it gained an additional 14.36%. It’s now the best YTD performer on the S&P 500, up 59.76% in 2017.
Transdigm (NYSE:TDG), an aircraft components producer, rose 12.42%. Though the company reported Q4 2016 EPS of $2.57 that missed some analyst expectations, revenue jumped by 16% YoY, to $814M. Net income fell in large part due to a special $24 dividend paid out to shareholders in October.
Cabot Oil & Gas (NYSE:COG) gained 12.32% after JP Morgan upgraded the stock from neutral to overweight. This followed approval by the Federal Energy Regulatory Commission (FERC) of the Atlantic Sunrise Pipeline expansion, through which Cabot will be able to ship 850M cubic feet of gas per day.
Hanesbrands (NYSE:HBI), which manufactures basic apparel, saw shares rebound 9.85%. Hanes was one of the S&P’s worst performers two weeks ago when disappointing Q4 2016 earnings sent shares plummeting 17%. It’s likely, however, that the close to three-year low signaled a buying opportunity to traders and contributed to this week’s bump.
Cognizant (NASDAQ:CTSH), the IT services and consulting company which appeared on last week’s bottom ten list, gained 9.33% this week. Despite Q4 2016 revenue coming in at $3.46B, 1.2% below expectations, reported earnings per share of $0.87 were better than expected.
Equifax (NYSE:EFX), which provides information, consulting, and outsourcing services, jumped 9.48% as Q4 2016 EPS and revenue both surpassed estimates, coming in at $1.42 and $801M, respectively.
News Corp (NASDAQ:NWSA), the global media and information service that owns The Wall Street Journal, Market Watch and the Dow Jones among other holdings, gained 8.31%. Though Q4 2016 revenue came in 0.5% below expectations, at $2.21B, earnings per share were $0.19, a YoY increase of more than 400%.
CBRE Group (NYSE:CBG), a global commercial real estate company, rose 7.97%. Despite Q4 revenue of $3.82B, which missed the estimate target by 3%, Q4 2016 was $0.93 – 2.5 times expectations.
Biggest Losers Last Week
The S&P 500’s biggest decliners on the week were:
Dun & Bradstreet (NYSE:DNB), a provider of business data, analytics, and insights, sank 18.73% as Q4 2016 EPS came in at $2.99, $0.05 shy of estimates. Revenue of $517.1M beat expectations by 0.4%.
Gilead Sciences (NASDAQ:GILD), a biopharmaceutical company, tumbled 8.27%. Q4 2016 EPS came in at $2.7 on $7.32B in revenue. Both figures beat expectations, but represented YoY declines of 11% and 14%, respectively.
Akamai Technologies (NASDAQ:AKAM) fell 8.05%. The cloud computing corporation posted strong Q4 2016 results, with EPS of $0.72 and revenue of 616.1M, both exceeding expectations. However, lowered Q1 2017 expectations based on another investment cycle prompted several analysts, including Morgan Stanley, to downgrade their price targets.
Michael Kors (NYSE:KORS) lost 6.44% as the fashion brand reported Q3 2017 revenue of 1.35%, one percent below expectations. Fears, however, may be overblown, since earnings came in at $1.64 per share, more than double what analysts had expected.
Marathon Oil (NYSE:MRO) fell 6.04%, ahead of its Q4 earnings report on February 15, where EPS is expected to fall 15 cents on revenue of $1.19B.
Coty (NYSE:COTY), the manufacturer and distributor of beauty products including fragrances under the Marc Jacobs, Calvin Klein and Katy Perry brands, lost 5.77% as the firm reported Q2 2017 EPS of $0.3, a YoY decline of 22%. This despite YoY revenue nearly doubling to $2.3B.
Assurant (NYSE:AIZ), which provides risk management solutions, dropped 5.18% as Q4 EPS came in at $0.46 on revenue of $1.75 billion, representing YoY declines of 44% and 31%, respectively.
Endo International (NASDAQ:ENDP), which manufactures and distributes pharmaceutical products and devices, dipped 5.11%. The stock has been ranging between 11.37 and 13.02 the past four weeks, ahead of its February 27 earnings report.
TechnipFMC (NYSE:FTI), which provides tech systems and services for oil and gas projects, fell 4.94% ahead of its Q4 earnings report scheduled for February 20, where EPS and revenue are both expected to experience YoY declines – of 50% and 20%, respectively.
Vulcan Materials (NYSE:VMC), which sells concrete and asphalt, dropped 4.87%. Though their Q4 2016 earnings per share came in at $0.69 more than doubling expectations, revenue was only $873M, less than the expected $909.5M.
The week ahead
Markets will continue monitoring geopolitical events. In the US, President Trump has said he is mulling 'a brand new immigration order' though the administration has also signaled it has not yet given up on its original executive order. In Europe, investors will monitor the UK's next Brexit maneuvers and eye campaign news in Germany, France, and the Netherlands; as well as any developments in the currently stalled Greece bailout negotiations.
On the calendar this week:
- Monday: China's January CPI data will also be released.
- Tuesday: Fed Chair Janet Yellen will appear before the Senate Banking Committee, delivering her semiannual monetary policy report. German Q4 GDP, UK January CPI, and US January PPI will also be released.
- Wednesday: Janet Yellen will testify before the House Financial Services Committee. UK December unemployment rate will be announced.
- Thursday: US Building Permits and the Philadelphia Fed Manufacturing Index will be released.
- Friday: UK January retail sales will be announced.
Earnings season continues. Among those reporting:
On Monday, after the close, Teva Pharmaceuticals (NYSE:TEVA) is expected to report Q4 2016 earnings per share of $1.35 on revenue of $6.26 billion. And on Wednesday, before the open, global food and beverage company PepsiCo (NYSE:PEP) is expected to announce Q4 2016 earnings of $1.16 per share on revenue of $19.67. That same day, after the market close, Cisco (NASDAQ:CSCO) is expected to report Q2 2017 EPS of $0.56 on $11.55 billion in revenue.