Week Ending 5/27/2017
- Stocks posted gains in most market around the world including the U.S.
- Technology stocks are up +20.1% year-to-date or more than double the average stock
- Commodity prices, in particular oil, fell this week on weakening demand
- Mixed economic reports raise some concerns about the economy’s strength in the second quarter
Notable Market Headlines
U.S. stocks continue to push higher in spite of concerns by some about what they believe to be considerable political risks. Large U.S. stocks gained +1.4%, led by technology and consumer goods stocks, while small U.S. stocks trailed behind slightly with a gain of +1.1%. Year-to-date the gains for large U.S. stocks are impressive at +8.1% while small stocks are only higher by +2.0%.
International stocks were mixed for the week with developed country stocks down a small -0.1% while emerging market stocks gained +1.4%. Of note in emerging markets was a gain of +1.5% for stocks in Brazil after sinking -12% in the prior week. Year-to-date both developed and emerging markets have done extremely well, up +14.4% and +19.2%, respectively. Fueling this strong performance has been investors pouring $202.3 billion into funds that invest in these stocks (according to www.ETF.com).
The only asset class posting any meaningful decline for the week was commodities losing -1.5%. This loss is primary the result of a continued fall in the price of oil on concerns of increased inventories and slowing demand.
Real estate stocks gained a slight +0.2% for the week but remain negative year-to-date. Gold had another strong performance gaining +1.0% and is higher by +10.0% year-to-date.
Bond prices were essentially unchanged and are higher by just +1.25% year-to-date.
Winners and Losers by Sector
Best Buy (BBY) reported surprisingly strong quarterly results with its stock reacting with a gain of +14.9% for the week. Best Buy, for the time being, is clearly bucking the trends of many other retails surprising investors by posting same-store sales growth of +1.6%. It’s been more than just a week of good news for investors with the stock up +38.2% year-to-date following a +40.1% gain in 2016. The strong stock performance the last 18 months though was following some prior disappointments as the accompanying chart.
The continued decline in the price of oil had a direct impact on two groups of stocks in particular.
Airline stocks rallied:
- American Airlines (AAL): +7.8%
- Delta Air Lines (DAL): +5.4%
- Southwest Airlines (LUV): +4.5%
- United Continental (UAL): +4.2%
Energy stocks fell:
- Chesapeake Energy (CHK): -8.5%
- Marathon Oil (MRO): -7.0%
- Devon Energy (DVN): -6.7%
- Noble Energy (NBL): -5.7%
Tripadvisor (TRIP), the popular travel website, saw its stock tumble -11.4% this week adding to its 2017 loss now at -15.7%. This poor performance follows a drop of -45.6% in 2016. It has clearly been a tough environment for this company and, according to comments from its CFO, the challenges have continued into the current quarter.
Economic Indicator - Reported
The revision to first quarter Gross Domestic Product (GDP) was much better than expected. The quarter is now reported to have grown by +1.2% as compared to the previous report that growth was just +0.7%. Many of the components making up GDP are now reported better than originally estimated with the biggest improvement in consumer spending.
April Durable Goods Orders, items with a useful life of 3 years or more, fell by -0.7% as compared to estimates of an increase. This is a disappointing start for the second quarter which is generally expected to be better than the first. Orders for aircraft can make this report very volatile but even when excluding aircraft, the report was still negative.
Another sign of weakness in this early part of the second quarter was an unexpected drop in New Home Sales to an annualized rate of 569,000. On the positive side both February and March numbers were revised higher. This number as well can be very volatile so it is important to not read too much into one month’s report.
Economic Indicators – Upcoming
The Employment Report, closely watched by many investors, will be reported for May. It is expected that the economy added 185,000 jobs and the unemployment rate remained at a very low 4.4%. Investors consider this report to be important because the Federal Reserve closely watches it as well and it could impact their decisions on interest rate policy.
The Home Price Index for March is expected to show an increase in home prices by +0.8%. This has been and is expected to continue to be an area of strength in the economy.
Consumer Confidence will be report for April.