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Week Ending 4/22/2017

Summary

  • Stocks gained around the world with small-caps posting the leading
  • Oil prices fell sharply as production rose
  • Earnings reports are pouring in for the first quarter and generally coming in strong
  • Bond closed nearly unchanged

Notable Market Headlines

Stocks reversed course and recovered some of the prior week’s losses. U.S. small-cap stocks posted the biggest gains of +2.61% while large-cap stocks were higher by +0.90%. The strong rally for small-cap stocks got them back into positive territory year-to-date and they continue to be one of the better performers since the election results in November up +15.4% while large-caps are up +9.5% during the same time.

International stocks continue to be some of the best performers year-to-date with developed country stocks adding to their year-to-date gain of +7.35% with a gain of +0.62% for the week. This strong performance comes in spite of wide concerns about politics in Europe. International emerging market stocks have been the year’s standout winner at +12.23% following a small gain for the week.

The big mover this week was the price of oil dropping more than $3 per barrel to close below $50. This impacted the Commodity index which fell -4.68% and is lower by -7.72% year-to-date. The price of oil fell on reports of another increase in the number of producing oil rigs in the United States. (source: Baker Hughes: http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother )

As the graph below shows, rig counts collapsed in 2015 as the price of oil fell and have been steadily recovering. Since the May 2016 low, the number of rigs has more than doubled but remains less than half the level prior to the decline.

Real estate stocks moved higher for the week while the price of Gold gave back a small portion of the year-to-date gains. Bonds were virtually flat as investors attempt to gauge the outlook for inflation, tax policy, and future economic growth.

Investor Trivia Question

Netflix, the leader in online television and movie content, has achieved tremendous success since its stock initial public offering about 15 years ago. During that time its market value has grown from about $600 million to more than $53 billion today!

The company reported strong sales and earnings for the quarter but the number of subscribers to its online service disappointed investors. How many subscribers does Netflix have to its online service?

See below for answer.

Winners and Losers by Sector

Market Leaders

Lam Research (LRCX), a supplier of equipment used to make semiconductors, reported earnings of nearly 3 TIMES last year’s same quarter of $3.51 per share on revenue that surged 64% to $2.15 billion. Its stock jumped to a record high and closed the week up +11.8% and helped propel much of the industry higher as well.

CSX Corp (CSX), one of the nation’s largest railroad companies, reported earnings that were well ahead of Wall Street estimates resulting in its stock gaining +9.4% for the week or more than $4 billion. These strong results are considered a good indication of economic growth in the U.S. This stock has been one of the year’s best performers with a gain of +41%.

Market Laggards

Mattel, Inc. (MAT), a leading manufacturer and marketer of toys around the world with sales of nearly $5.5 billion annually, reported first quarter results well below Wall Street expectations resulting in its stock dropping -12.9% for the week. The company’s weak earnings were impacted by a 15% drop in sales due to inventory overhang from the holiday season.

Energy stocks topped the list of losers this week as highlighted in the table of “Top 50 Best and Worst Performers” following the price of oil lower. Some of the biggest losers were the following:

  • Apache Corp (APA): -6.4%
  • Chesapeake Energy (CHK): -6.3%
  • Kinder Morgan (KMI): -5.2%
  • Marathon Oil (MRO): -4.7%

The declines for the week were not terrible but they were wide-spread across the industry. Most of the stocks in the sector are down double-digits for the year.

Economic Indicator - Reported

U.S. Housing Starts were reported lower by -6.8% in March but are coming off a record February making the overall first quarter a good start to the year. Another sign of strength was the +3.6% increase in building permits for the month and a +10.4% for the quarter. One of the bigger stories in housing is the decrease in the number of listings by -26% since the August 2015 peak to 1.4 million today.

The March Leading Indicators report came in higher than expected at 0.4%. Economists were concerned the that the soft labor market would have more of a negative impact but gains in multiple other data points helped propel this indicator higher.

Economic Indicators – Upcoming

The big economic report this week will be the first read on first quarter U.S. Gross Domestic Product (GDP). Optimism has been high since the election that the economy will pick up pace but concerns have arisen. During the past couple of months, estimates for first quarter growth have declined from +2.1% to a current forecast of +1.1%.

Other notable reports expected this week include Consumer Confidence and Durable Goods Orders. Neither are likely to capture the attention of investors as they wait for the GDP report late in the week.

Investor Trivia ANSWER

Netflix has 98.75 million online subscribers! 50.85 million are in the U.S. while the remainder are elsewhere. The company is growing at about twice the pace outside the U.S. as it is in the U.S. Helping attract new subscribers is the company’s original content which it plans to spend $6 billion on in 2017 (the second largest budget in the industry).

Contact Mark A. Patton :