Week Ending 6/10/2017

Summary

Notable Market Headlines

Stocks turned in somewhat mixed results this week with large U.S. stocks down -0.3% while small U.S. stocks gained +1.3%. Former FBI director Comey’s testimony on Thursday and U.K. elections on Friday had little if any impact on the market with investor instead seemingly focused on the health of the economy and stocks. The gap year-to-date between large and small stocks has narrowed with large U.S. stocks still higher by +8.9% and small U.S. stocks now higher by +5.0%.

The big story in the U.S. markets was the fall in technology stocks helping fuel the worst week this year for the tech-heavy NASDAQ 100 Index. This index fell -2.4% with the majority of that due to Friday’s loss of -1.7%. Technology stocks have been the market leaders by a wide margin this year with stocks such as Facebook, Apple, Amazon, and many others gaining 28% or more. Friday’s sizeable declines for all of these stocks, while the rest of the market held up relatively well, raises some concerns about their ongoing stock performance and the impact this could have on the entire market.

International stocks were lower across the board with emerging markets holding up better than developed countries. International developed country stocks fell -1.4%. The U.K. market, impacted marginally by the elections, did slightly underperform the rest of the region with a loss of -1.7% but it was not of significant note. Emerging markets were down just -0.4%. Interesting year-to-date is the performance of stocks in Russia down -12.5%. This is the worst performing emerging market by a wide margin with Brazil being next at +2.7%.

Commodities added to their year-to-date losses with a decline of -1.8% this week fueled by a continued drop in the price of oil on higher inventory levels. Oil had a one-day drop more than -5% mid-week but then recovered somewhat. Gold gave up some of its 2017 gain falling -0.9% this week but remains higher for the year by +10.0%. And real estate was higher by +0.6%.

Bond prices were lower by -0.3% this week. The big news for bonds, and all financial assets, is the Federal Reserve’s meeting in the coming week. It is widely expected the Fed will raise interest rate by 0.25%

Investor Trivia Question

Exchange-Traded Funds, or ETFs, is very similar to a mutual fund but with the biggest difference being that they trade on a stock exchange just like any other stock. ETFs have become an extremely popular investment vehicle the past several years due to their lower cost, transparency, and more.

According to the Investment Company Institute (www.ici.org), the number of ETFs in the U.S. totaled 1,594 at the end of 2015 and has continued to grow since. But not all ETFs are, or course, successful. How many ETFs have been closed during the past 5 years?

See below for answer.

Winners and Losers by Sector

Stock Highlights

Financial stocks accounted for more than half of the top 50 performers this week. This strength was fueled by the House passing a bill that would reduce regulations put in place by the 2010 Dodd-Frank bill. This new bill is not expected to pass the Senate but there is expectation that, at the very least, the Trump administration will enact certain components of the bill that would be drive growth for these companies.

Advanced Micro Devices (AMD) bucked the selloff in technology stocks this week posting a gain of +12.7%. Apple was the driver of AMD’s stock moving higher following an announcement that the new iMac Pro will feature an AMD chip. Longer-term, this company’s leading competitor is Intel Corp. (INTC), a company that is more than 10 TIMES its size. The below graph shows the change in revenue from year-to-year for both companies making it clear AMD has struggled longer term against its big competitor.

Nordstrom Inc. (JWN) is rumored to be a takeover target. The stock gained +11.0% for the week resulting from sharp jumps in prices on Thursday and Friday. Year-to-date the stock remains slightly lower.

Some other retailers saw a bounce in their stock as well:

Molson Coors Brewing (TAP) shares fell -9.8% this week following the company’s updated financial guidance during its investor meeting this week. The company reiterated much of its long-term financial guidance related to its acquisition of MillerCoors less than a year ago. The disappointment was the expectation of profit margins growing slower than originally forecast. The company has struggled recently with three consecutive quarters of earnings coming in below estimates.

Technology stocks reversed course this week but still remain sharply higher year-to-date. Below are some of the notable losers this week, nearly all of the losses occurring on Friday alone:

Economic Indicator - Reported

Productivity, a measure of measure of labor efficiency to produce goods and services, was revised to flat in the first quarter from an initial reading of -0.6%. Although the revision was positive, the result is still disappointing. Low productivity growth squeezes company profit margins and has been a major contributor to the economy’s overall slow growth in recent years.

Factory Orders declined in April by -0.2% as expected. A couple of positives in the report included decent strength in automobile orders and computers. This report, although just one data point, suggests a possible weakening economy in the second quarter.

Economic Indicators – Upcoming

There is a fairly busy economic calendar this coming week.

We will get two report on inflation for May. The Producer Price Index (PPI), a measure of wholesale prices, is expected to come in +0.1%. The low expectation is partially the result of low energy prices. The Consumer Price Index (CPI), a measure of retail prices, is expected to rise +0.2%, an increase that is consistent with the average for the past few years.

Retail sales for May are expected to slow from their stronger than expected April. Economists are expecting an increase of +0.2% with this number being partially held back by weak auto sales.

Industrials Production, a measure of manufacturing activity, is expected to cool from an also strong April. May’s number is estimated to be higher by +0.2%.

Investor Trivia ANSWER

471 ETFs have been closed during the past 5 years according to Morningstar! This is the result of so many investment companies creating so many ETFs that focus on very narrow segments of the market and then not attracting enough investors to sustain. In spite of this, ETFs are here to stay and, the appropriate ETFs, are great investment vehicles for investors.

Source: 2016 Investment Company Fact Book