U.S. markets closed mostly lower on Friday with the Dow and S&P 500 declining 0.4%, and 0.3%, respectively, to post their second-straight weekly loss.
The Nasdaq pulled back from Thursday’s all-time high, after giving back 0.2%. For the week, the S&P posted a loss of 0.1%, while the Dow dipped 0.3%. The Nasdaq, however, saw a 0.5% weekly rise.
Meanwhile, the Russell 2000 rallied for the second-straight session after gaining 0.4% but fell shy of clearing the 1,500 level. For the week, the small-caps surged 2%.
Energy and Consumer Discretionary showed strength after rising 0.5% and 0.4%, with Materials the only other sector in the green after advancing 0.1%.
Utilities paced the laggards after falling 0.7% followed by Technology, Industrials, and Real Estate with the sectors slipping 0.6%. For the week, Energy sank 3.2% while Consumer Discretionary rose 1.3%.
Total Q3 earnings for 94% of the S&P 500 companies that have reported already are up 6.6% from the same period last year on 6% higher revenues, with 72.3% topping EPS estimates and 66.5% beating revenue estimates.
Excluding the Financial sector, Q3 earnings growth jumps to 10.5% from 6.6%. The Energy sector is having the opposite effect, with Q3 earnings growth declining to 4.3% on an ex-Energy basis.
Overall, the 3Q earnings season has been solid for the Energy, Industrial Products, Technology, Construction, Business Services, and Medical sectors. The Financial sector results have lagged after coming in below average.
The revisions trend for Q4 estimates continues to be favorable, with earnings estimates holding up a lot better relative to other comparable periods.
For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.6% on 4.9% higher revenues, which would follow 0.7% earnings growth on 2.1% higher revenues in 2016. Index earnings are expected to be up 11.7% in 2018 and 9.6% 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 5.5% from the same period last year on 5.7% higher revenues.
This would follow persistent earnings declines for the small-cap index – S&P 600 earnings growth was negative in 3 of the last 4 quarters.
Strong growth from the Financial, Technology and Energy sectors are driving the small-cap growth.
The Financial sector’s role is particularly notable in the small-cap index, with Q3 earnings growth rising to 6.7% (up from 5.5%) on an ex-Financial basis.
Global Economy- European markets closed lower on Friday with the Stoxx Europe 600 declining 0.3% to extend its losing streak to two-straight weeks.
The Belgium20 tumbled 1% and Germany’s DAX 30 dropped 0.4%. France’s CAC 40 stumbled 0.3% while UK’s FTSE 100 dipped 0.1%.
ECB President Draghi said that the robust recovery means the economy may be becoming more resilient to new shocks and as prices are gradually picking up, wage rises will follow and push inflation closer to the ECB’s goal.
Asian markets were mixed with Japan’s Nikkei gaining 0.2% but closing lower for the first time in 10 weeks, snapping a 9-week winning streak and the longest since the start of 2013.
Hong Kong’s Hang Seng Index climbed 0.6% and Australia’s S&P/ASX 200 was up 0.2%. China’s Shanghai Composite fell 0.5% while South Korea’s Kospi was down less than a point, or 0.03%.
Housing Starts surged 13.7% to a 1,290,000 unit rate in October, more than erasing the 3.2% hurricane-related September drop. Expectations were for a rise of 2.9% to a 1,160,000 pace. Building permits rose 5.9% to 1,297,000.
E-Commerce Retail Sales were up 3.6% for the quarter.
November Kansas City Fed Manufacturing Index Level checked in at 16 versus expectation of 23.
Baker Hughes reported that the U.S. rig count was up 8 rigs from last week to 915.
Market Sentiment- San Francisco Fed President John Williams said the economy continues to grow very nicely, and U.S. is in a period of relative calm.
He added that in his view a perfectly reasonable path for policy would be one more rate increase this year and three next year.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to trade to a high of $126.44 on Friday while clearing upper resistance at $126-$126.25. Continued closes above $126.50 would be a bullish development for a possible run towards $127-$127.50.
Rising support is at $126-$125.50 with a move below $125 and a downtrending 50-day moving average being a bearish development.
RSI held recent support at the 50 level and is back in an uptrend with resistance at the 60 level and early November highs.
Market Analysis- The Russell 3000 Index ($RUA) recently held early October support at 1,510 and the 50-day moving average. A close below these levels would be a slightly bearish development for a continued backtest towards 1,500-1,490.
Resistance is at 1,530-1,535 with a move above the latter being a bullish development. The recent all-time high is north of 1,537.
RSI backed off resistance at 60 that served as September support and a level that needs to hold to show continued momentum.
The Consumer Staples Select Spiders (XLP) recently formed a double-bottom near the $52.50 level. We mentioned at the beginning of the month the bearish death cross could lead to additional weakness with the 50-day moving average falling below the 200-day moving average.
The technical setup has somewhat improved following the recent push towards resistance at $54.75-$55.
Continued closes above $55.50 would represent a triple-top breakout and typically a bullish signal for higher highs. RSI is trying to hold near-term resistance at 60. Support is at 50.
The percentage of S&P 500 stocks trading above the 50-day moving average reached the 55% level last week and an area that represented August and September resistance.
We mentioned there was risk to 60%-58% on continued weakness earlier this month. Friday’s close back above the 60% level was a slightly bullish development with further resistance at 65%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently north of 63% after retesting a 6-month low of 57.94% last Wednesday.
This exact level was reached on November 2nd. We mentioned there is risk to the 55% level from last November on continued weakness but a temporary double-bottom might have been reached. Resistance is at 65% with Friday’s high tapping 65.42%.
This exact level held twice earlier this month and once in late December with a close above 67.5% being a continued bullish development.
All the best,