U.S. markets traded higher on Friday and ahead of the holiday weekend to set another round of record highs as 4Q earnings earnings season began.
The Dow rose 0.9% after testing an intraday high of 25,810 while gaining 2% over the week. The S&P 500 advanced 0.7% after closing a point off its late day run to 2,787 to book a 1.6% gain for the week.
It was the second-straight up week for both the Dow and the S&P 500, as well as their seventh positive week in the past eight.
The Nasdaq rose 0.7% after trading to an all-time peak of 7,265 and was up 1.7% over the past week, its second consecutive weekly advance.
The Russell 2000 climbed 0.3% after coming within 2 points of clearing the 1,600 level. For the week, the small-caps rallied 2%, its biggest weekly advance since September.
Consumer Discretionary and Energy led sector gains, and were up 1.3% and 1% respectively. Real Estate and Utilities were the only sector laggards, falling 0.7% and 0.6%.
Sectors for the week that outperformed were Energy and Industrials (3.3%), Consumer Discretionary (3.2%), and Financials (2.9%).
Real Estate and Utilities sank 3.4% and 2.1% while Consumer Staples fell 0.5% and were the under-performers sector for the week.
Next week will be the first real week of earnings season, with four more major weeks to come. By the end of next week a little over 7.5% of S&P 500 companies will have reported, representing over 12.6% of the index weight.
The week after will see an additional 19% of the components having reported, representing over 22% of index weight in that week alone.
Global Economy- European markets traded higher after German negotiators reached a preliminary accord on a coalition. France’s CAC 40 was up 0.5% while the Stoxx Europe 600 and Germany’s DAX 30 climbed 0.3%.
The Belgium20 and UK’s FTSE 100 advanced 0.2%.
German Chancellor Merkel’s Christian Democratic Union, the Bavarian CDU Party and the Social Democrats, came to an agreement that outlines a possible alliance.
Asian markets were mostly higher with the exception of Japan’s Nikkei Stock which slipped 0.2%. Hong Kong’s Hang Seng surged another 0.9% to close higher for the 14th-straight session and South Korea’s Kospi rose 0.3%.
China’s Shanghai was up 0.1% while Australia’s S&P/ASX 200 added just over 2 points, or 0.04%.
China December new yuan loans rose by 584.4 billion yuan, weaker than expectations for a gain of 1 trillion yuan. December aggregate financing rose 1.14 trillion yuan, weaker than expectations of 1.500 trillion yuan.
The China December trade balance was in surplus by $54.69 billion, wider than expectations of $37 billion and the biggest surplus in nearly 2-years.
December exports rose 10.9% year-over-year, stronger than expectations of 10.8%. December imports rose 4.5% year-over-year, weaker than expectations of 15.1%.
U.S. Consumer Price Index edged up 0.1% in December, with the core up 0.3%. The 12-month rate slowed to 2.1% year-over-year versus 2.2%, but the core accelerated a bit to 1.8% year-over-year versus 1.7%.
November Business Inventories were up 0.4% versus forecasts for a rise of 0.3% for the month.
U.S. December retail sales increased 0.4% for the headline and ex-autos. The core matched expectations while ex-autos were expected to come in at 0.5%.
Baker Hughes reported that the U.S. rig count was up 15 rigs from last week to 939, with oil rigs up 10 to 752, gas rigs up 5 at 187, and miscellaneous rigs unchanged.
The U.S. Rig Count is up 280 rigs from last year’s count of 659, with oil rigs up 230, gas rigs up 51, and miscellaneous rigs down 1 to 0.
The U.S. Offshore Rig Count is up 2 rigs from last week to 19 and down 6 rigs year-over-year.
Market Sentiment – Dallas Fed’s Kaplan upped his GDP forecast by 0.2% due to tax reform and projects growth in the 2.5%-2.75% area for this year.
His base case for interest rates is still for three hikes, and not less and added acting sooner rather than later will prevent the Fed from acting more aggressively later and help sustain the exonomic expansion.
Kaplan went on to say he could see the unemployment rate drop under 4%.
He also expects a big jump in oil supply out of the U.S., possibly in the 10.25 million barrel area and said a rebalancing in China should be manageable.
Philadelphia Federal Bank Reserve President, Patrick Harker, expects two rate hikes in 2018 and shy of the three dot median forecast. He also said the economic outlook was pretty good.
Atlanta Fed’s Q4 GDPNow estimate was boosted to 3.3% from 2.8% previously. The forecast of fourth-quarter real consumer spending growth increased from 3% to 3.8%.
Cleveland Fed’s Median CPI rose 0.3% in December after a 0.2% November gain. The 16% Trim CPI rose 0.2% last month after the same gain in November.
New York Fed NowCast Q4 GDP estimate was trimmed to 3.88%, compared to 3.97% previously. For Q1, 2018, the economy is forecast to grow 3.21%, down from 3.45% previously.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded for the 2nd-straight session after trading to a high of $124.79. Lower resistance at $124.75-$125 held.
A close above the latter would be a slightly bullish signal for a continued test to $125.50-$125.75 and the 50-day moving average. Support is at $124-$123.50 and the 200-day moving average.
RSI is back in an an uptrend after holding mid-December support at 40.
Market Analysis- The Russell 2000 ETF (IWM) traded to an all-time high of $158.86 on Friday after breaking out of a tight trading range between $154-$155 to start the New Year.
Fresh resistance is now at $159-$160. Support is at $158-$157.50 with backup help at $156-$155.50.
RSI is cleared November resistance at 70 with fresh hurdles at 80-85 and September and early October highs. A close back below 70-65 would likely signal a short-term top.
The Technology Select Sector Spiders (XLK) traded to an all-time high of $66.90 with lower resistance at $66.75-$67 holding into the closing bell.
Continued closes above the latter could lead to a run towards $68.50-$70. Support is at $66.25-$65.75 with a move below the latter being a slightly bearish development.
RSI is approaching early January and mid to late-November resistance at 70-72 with continued closes above this level being slightly bullish for a possible run towards 80.
The percentage of S&P 500 stocks trading above the 50-day moving is currently at 81% after peaking at 83.56% midweek and a 52-week peak.
Resistance is at 83.5%-85% on continued closes above 80% but is signaling overbought levels. Support is at 77.5%-75%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 82.69% with late April and early May resistance at 85% in play on continued momentum.
Support is at 80%-77.5% with a move below the latter signaling a short-term top.
All the best,