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Week Ending 6/24/2017

Summary

  • U.S. stocks overall inched higher with continued historic low volatility
  • Technology and healthcare stocks surge while energy stocks continue their decline
  • International developed country markets, such as those in the U.K, Germany, and Italy, were down meaningfully
  • U.S. average home prices continue to increase to record levels

Notable Market Headlines

U.S. stocks notched relatively small gains for the week with large U.S. stocks gaining +0.2% and small U.S. stocks up +0.5%. These relatively modest gains masked the underlying fairly large price movements in various sectors creating a wide gap between the week’s winners and losers.

Technology stocks resumed their trend higher with the sector up +2.7% for the week and now higher by +20.3% for the year. This strength follows a couple of weeks of underperformance for the sector with investors questioning whether many of these stocks have ran up too far too fast. This is of course a good question but one that will only be answered as time passes.

The impressive gains in technology stocks this week were topped by healthcare stocks with the sector gaining +3.7% and is now higher by +17.5% for the year. This strength was attributable to investors’ positive reaction the health-care bill in the Senate which is expected to be good for many healthcare companies.

One sector on the list of losers again was energy stocks lower by -2.7% for the week and are now down -14.8% for the year. A second sector experiencing selling this week was telecommunications stocks. This sector was down more than -3% but is one of the smaller sectors resulting in very little impact on the overall market.

International stocks were mixed with international developed markets down a sharp -1.9% and emerging markets were higher by +0.7%. Among the developed countries getting hit the hardest was the U.K. lower by -3.5%. The selling was widespread though with Italy’s market off -2.5% and Germany’s was lower by -2.2%. One of investors’ concerns is about slowing economic growth. In spite of the losses in developed country markets this week, these markets remain better performers year-to-date than U.S. stocks with developed country stocks up +12.8% year-to-date as compared to +8.8% for large U.S. stocks.

A couple of the less traditional investments, gold and real estate, were both virtually flat for the week. Commodities declined -2.8% for the week, adding to their losses for the year now totaling -15%, as the price of oil continued its decline.

Bonds inched higher in price by +0.1%. There does appear to be active debate among the members of the Federal Reserve responsible for setting interest rate policy as to when they should raise rates again.

Investor Trivia Question

It has now been one year since Brexit, the vote by U.K. citizens to leave the European Union. This was a shock to investors as markets around the world initial spiked lower.

How do you think U.K. stocks have performed relative to the overall European Union since this historic Brexit event?

See below for answer.

Winners and Losers by Sector

Stock Highlights

Advanced Micro Devices (AMD), a computer chip maker, saw its stock surge +23.8% for the week on the unveiling of details for a new super processing chip. Many of the leading computer manufacturers including Hewlett Packard, Dell, and Lenovo will be debuting products featuring this chip. AMD’s stock has more than tripled the past 12 months and has even outperformed Intel the past 5 years but it has been a wild ride for AMD shareholders as the accompanying graph shows.

Red Hat (RHT), an open source software solutions company, reported strong earnings and its stock jumped +13.2% and is now higher +42.6% year-to-date. Both sales and earnings results were well ahead of analyst expectations. The company was successful at both renewing many of its largest service contracts with customers as well as getting high fees.

Congress’ proposed healthcare bill resulted in a surge higher for many biotech stocks. For many of these stocks, but not all, this week’s gain added to their already significant gains year-to-date. Following are the week’ biggest winners:

  • Incyte Corp (INCY): +15.4%
  • Regeneron Pharmaceuticals (REGN): +12.5%
  • Biogen (BIIB): +11.4%
  • Mallinckrodt (MNK): +11.1%
  • Gilead Sciences (GILD): +10.0%
  • Celgene Corp (CELG): +9.8%

Bed Bath & Beyond (BBBY) reported earnings that disappointed driving its stock lower by -16.1% for the week. Results were below expectations across the board with revenue flat compared to last year and earnings per share dropping by 34%. One bright spot was a 20% increase in digital sales but this did not offset the decline in store traffic and same-store sales.

The list of energy stocks landing on the list of biggest losers for the week is long. The continued decline in the price of oil is the driving force for these stock price declines. As the price of oil continues to decline, investor concerns continue to increase that many energy companies may be unable to meet current earnings expectations. Following are some notable losers for the week:

  • Chesapeake Energy (CHK): -10.4%
  • Marathon Oil (MRO): -7.9%
  • Apache Corp (APA): -7.0%
  • Hallibuton (HB): -6.3%

These stocks are all off -23% to -35% in 2017.

Economic Indicator - Reported

New home sales came in stronger than expected with sales of 610,000 homes in May compared to an estimate of 590,000. These strong sales numbers are accompanied by a record-setting average price of $345,800. Not only is strong demand driving prices higher but tighter than normal supply is contributing as well. Existing home sales also came in very strong and above estimates at 5.62 million annualized pace.

The index of leading indicators, 10 indicators that are supposed to provide some indication of economic activity for the next 6 months, increased by 0.3%. This report has been showing signs of slowing the past couple of months after a strong start to the year.

Economic Indicators – Upcoming

The economic calendar for the coming week is fairly quiet.

Durable goods orders for May will be reported with economists expecting a decline of -0.4%.

Another report on housing prices will be reported with expectations that prices rose +0.6% in April. A gain of +0.6% for the month would put the year-over-year gain at +5.9%.

Personal income is expected to have increased by +0.3% in May while personal spending by only +0.1%. The spending number follows what was a decent gain of +0.4% in April. This is an important report providing some insight on the health of the consumer and two-thirds or our economy.

Investor Trivia ANSWER

U.K. stocks have gained only +3% since the Brexit vote while European stocks overall are higher by +18%. No question that, at this point, the vote has been a negative for U.K. stocks.

Source: ETF symbols EWU and EZU

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