U.S. markets were weak throughout Friday with the Dow and S&P 500 finishing in the red for the second-straight session.
Both indexes ended the week lower for the first time in 9 weeks. The Nasdaq held near-term support before making a late day run into positive territory by nearly a point but had its 6-week winning streak snapped.
The Russell 2000 also closed slightly higher by a quarter-point but finished the week with nearly a 2% loss while holding its 50-day moving average.
Consumer Staples were strong with the sector gaining 1% to end the week up 2.2%. Real Estate surged 3.2% while Energy jumped 1.4% for the week. The Healthcare sector dropped 0.6% to pace sector laggards. For the week, Financials were hit the hardest with the sector falling 2.6%. Materials and the Industrial sectors gave back 1.2% and 1.1%, respectively.
With roughly 90% of total earnings for the S&P 500 members that have reported, earnings are up 6.8% from the same period last year on 6.2% higher revenues. Over 73% have beat EPS estimates with 67% topping revenue estimates.
For the quarter as whole, total Q3 earnings for the S&P 500 index are expected to be up 6.2% from the same period last year on 5.7% higher revenues, with strength in the Technology and Energy sectors offsetting weakness from the Finance sector.
Excluding the Finance sector drag, Q3 earnings would be up 9.8% from the same period last year.
For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.2% on 4.7% higher revenues, and would follow 0.7% earnings growth on 2.2% higher revenues in 2016. Index earnings are expected to be up 11.5% in 2018 and 9.8% in 2019.
Earnings growth is on track to turn positive in Q3 for the small-cap S&P 600 index, with total earnings for the index expected to be up 5% from the same period last year on 5.6% higher revenues. This would follow persistent earnings declines of negative growth in 3 of the last 4 quarters.
While overall Q3 earnings growth represents a deceleration from the double-digit growth pace of the last two quarters, the growth rate is expected to ramp up in the current and coming quarters, with Q4 earnings growth currently expected at 8.4%.
Global Economy- European markets showed continued weakness on Friday while posting their worst weekly drop in three months. UK’s FTSE 100 fell 0.7% while France’s CAC 40 declined 0.5%. The Stoxx Europe 600, the Belgium20 and Germany’s DAX 30 fell 0.4%.
UK September industrial production rose 0.7% month-over-month, stronger than expectations for a rise of 0.3% and the largest increase in 7 months.
UK September manufacturing production also climbed 0.7% month-over-month, stronger than expectations for an increase 0.3% and the largest increase in 9 months.
UK September construction output fell 1.6% month-over-month, weaker than expectations for a decline of 0.9%.
Asian markets finished mostly lower despite better-than-expected economic numbers out of Hong Kong. Japan’s Nikkei sank 0.8% while South Korea’s Kospi and Australia’s S&P/ASX 200 gave back 0.3%.
Hong Kong’s Hang Seng Index slipped 0.1% while China’s Shanghai index gained 0.2%.
Hong Kong’s economy expanded by 3.6% in the third quarter, topping expectations of 3.5%, but slower than the 3.9% rate recorded in 2Q. GDP expanded 0.5% from the previous quarter, down from 1.1% growth.
The University of Michigan consumer sentiment survey fell 2.9 points to 97.8 in the preliminary November print.
Baker Hughes reported that the U.S. rig count was up 9 rigs from last week to 907.
Market Sentiment- San Francisco Fed President John Williams said he expects a Fed rate hike at the December FOMC meeting and three more rate hikes in 2018 to return the fed funds rate to a normal level of about 2.5%.
The iShares 20+ Year Treasury Bond ETF (TLT) tumbled 1.5% after falling for the third-straight session to a low of $123.96. The close back below the 50-day moving average was a bearish development with fresh support at $124-$123.50.
Lowered resistance is now at $124.50-$125. RSI is sinking with risk to the low 30’s if late September/ early October support at 45 fails to hold.
Market Analysis- The Spider S&P 500 ETF (SPY) traded to an all-time high of $259.35 last Tuesday with continued closes above $258 keeping fresh resistance at $259.50-$260 in the mix.
A prior trading range between $256-$258 since late October had formed ahead of the breakout to lifetime highs with a close above the former being a slightly bearish development.
RSI is trying to hold mid-October support near the 60 level with a close below this level likely leading towards a further backtest towards 50.
The Real Estate Select Sector Spider (XLRE) cleared early September resistance at the $33.25 level while kissing $33.97 last Thursday and a fresh 52-week peak.
Near-term resistance is at $34-$34.25 with a move above the latter getting the late July 2016 high of $34.77 in play. Support is at $33.50-$33.25 with a close back below the latter signaling a short-term top.
RSI recently cleared June and September resistance above 70 and appears to flattening out. A move back below this level would signal upcoming weakness.
The percentage of S&P 500 stocks trading above the 50-day moving average is currently just below 62% after holding the 60% level late last week and September support.
There is stretch to 57% on continued weakness and an area that held on the September low. A close below this level would be a bearish development. A move back above 65% could lead to another run towards 70%-75% and the recent 6-month highs.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently above 63%. Continued closes above the 65% level would be a slightly bullish signal for continued strength.
A move back below 62.5% would be a bearish signal with risk to 60%-57.5%. The recent 6-month low reached 58% with the 1-year low at 55%.
All the best,
Roger Scott