Briefing.com

Daily Sector Wrap

Updated: 08-Dec-17 16:43 ET
Modest Gains Leave Stocks at Record Highs

Dow Jones Industrial Average +0.5%; Nasdaq Composite +0.4%; S&P 500 +0.6%; Nasdaq 100 +0.5%; Russell 2000 +0.1%; S&P 400 +0.4%

U.S. stocks finished the week on a positive note, helped by a favorable Employment Situation Report for November.

Both the S&P 500 and the Dow settled at new all-time highs, adding 0.6% and 0.5%, respectively. The Nasdaq finished slightly behind its peers, adding 0.4%, while the small-cap Russell 2000 showed relative weakness, finishing with a gain of just 0.1%. For the week, the S&P 500 advanced 0.4%.

The Employment Situation Report for November showed strong job growth and subdued wage growth, keeping in line with recent trends. Nonfarm payrolls increased more than expected (228K actual vs 190K Briefing.com consensus), average hourly earnings rose less than expected (+0.2% actual vs +0.3% Briefing.com consensus), and the unemployment rate stayed at 4.1%.

In short, the report isn't likely to keep the Fed from raising rates at next week's meeting, but it could give the Fed a cause for pause going into 2018. 

A positive vibe from overseas equity markets also contributed to the upbeat sentiment on Wall Street. Stocks in the Asia-Pacific region finished Friday broadly higher as investors rallied around China's better-than-expected November trade surplus (+$40.21 billion actual vs +$35.00 billion expected). Japan's Nikkei added 1.4%, finishing flat for the week.

Elsewhere, the Euro Stoxx 50 settled with a gain of 0.6% after the UK and the European Union reached an agreement on Brexit divorce terms. Britain will pay as much as GBP39 billion to complete the separation and there will be no hard border between Ireland and Northern Ireland. Talks will now turn to future trade relations.

In addition, Congress' decision to pass a two-week stopgap spending bill, which delayed an impending government shutdown, helped underpin Friday's advance.

The S&P 500's telecom services sector (+1.5%) was the top-performing group, followed from a distance by the heavily-weighted health care space (+1.1%). Within the health care group, biotech names showed particular strength, sending the iShares Nasdaq Biotechnology ETF (IBB 106.07, +2.02) higher by 1.9%.

Alexion Pharmaceuticals (ALXN 114.46, +7.68) paced the biotech rally, jumping 7.2%, after the New York Times reported that activist hedge fund Elliot Management has urged the biotech company to do more to lift its stock price. Celgene (CELG 106.09, +3.36) also outperformed, adding 3.3%, after Atlantic Equities upgraded its shares to 'Overweight.'

In total, ten of eleven sectors finished Friday's session in positive territory, with the lightly-weighted materials space (unch) being the lone laggard. 

Outside the equity market, U.S. Treasuries finished mostly flat, with the benchmark 10-yr yield closing unchanged at 2.38%, while the U.S. Dollar Index ticked up 0.1% to 93.88. West Texas Intermediate crude futures jumped 1.1% to $57.30 per barrel, but still finished the week lower by 1.8%.

Reviewing Friday's economic data, which included the Employment Situation Report for November, the preliminary reading of the University of Michigan Consumer Sentiment Index for December, and October Wholesale Inventories:

  • Employment Situation Report
    • November nonfarm payrolls increased by 228,000 while the Briefing.com consensus expected an increase of 190,000. The prior month's increase was revised to 244,000 from 261,000. Nonfarm private payrolls rose by 221,000 while the Briefing.com consensus expected an increase of 170,000. The previous month's increase was revised to 247,000 from 252,000.
    • The unemployment rate stayed at 4.1% (Briefing.com consensus 4.1%). Average hourly earnings increased by 0.2% (Briefing.com consensus +0.3%), while the previous month's reading was revised to -0.1% from 0.0%. The average workweek was reported at 34.5 (Briefing.com consensus 34.4). The previous month's reading was left unrevised at 34.4.
      • The key takeaway from the report is that wage growth remains subdued. That isn't likely to keep the Fed from raising rates at this month's meeting, yet it could give the Fed a data-based reason to move more slowly on the next rate hike in 2018.
  • University of Michigan Consumer Sentiment:
    • The preliminary reading of the University of Michigan Consumer Sentiment Index for December declined to 96.8 (Briefing.com consensus 98.8) from 98.5 in November.
      • The key takeaway from the report is that consumers continue to remain upbeat about current economic conditions, with higher income expectations feeding their optimism. As an aside, there was also a jump in consumers' inflation expectations for 2018.
  • Wholesale Inventories
    • October Wholesale Inventories decreased 0.5% (Briefing.com consensus -0.4%). The September reading was revised to +0.1% from +0.3%.
      • The key takeaway from the report is that the sales increase outpaced the inventory increase by a sizable margin, which is a step in the right direction for wholesalers trying to regain some pricing power.

On Monday, investors will receive just one economic report--the October Job Openings and Labor Turnover Survey--which will be released at 10:00 ET.

  • Nasdaq Composite +27.1% YTD
  • Dow Jones Industrial Average +23.1% YTD
  • S&P 500 +18.4% YTD
  • Russell 2000 +12.1% YTD

Sector performance: Technology +0.4% (+36.3% YTD), Health Care +1.1% (+20.2% YTD), Financials +0.6% (+19.9% YTD), Consumer Discretionary +0.4% (+19.2% YTD), Materials unch (+18.9% YTD), Industrials +0.4% (+16.7% YTD), Utilities +0.3% (+14.1% YTD), Consumer Staples +0.2% (+9.3% YTD), Real Estate +0.3% (+7.4% YTD), Energy +0.9% (-8.1% YTD), Telecom Services +1.5% (-10.5% YTD)

Week In Review: Waiting on Washington

Equities ticked higher this week as investors geared up for an end-of-year showdown in Washington.

The S&P 500 and the Dow Jones Industrial Average both advanced 0.4%, closing Friday's session at fresh record highs, while the tech-heavy Nasdaq underperformed, losing 0.1%. Small caps struggled this week, pushing the Russell 2000 lower by 1.0%.

Investor sentiment was upbeat at Monday's opening bell after the U.S. Senate passed its version of a tax reform bill over the weekend, allowing the GOP to enter the final stretch of its quest to rewrite the tax code. House and Senate Republicans are hoping to reach an agreement on a final bill and pass said bill in their respective chambers before December 22.

In addition to the GOP's self-imposed tax reform deadline, December 22 is the new end date for government funding after Congress agreed to a two-week stopgap spending bill on Thursday evening. The risk of a government shutdown was on investors' minds throughout the week, helping to keep the bulls in check.

With the legislative agenda for the rest of the year virtually set, investors appeared to be in wait-and-see mode for much of the week, taking some profits and readjusting their portfolios. However, the Employment Situation Report for November, which was released on Friday, helped equities finish the week on a positive note.

The Employment Situation Report for November showed a larger-than-expected increase in nonfarm payrolls (228K actual vs 190K Briefing.com consensus) and a smaller-than-expected rise in average hourly earnings (+0.2% actual vs +0.3% Briefing.com consensus).

In other words, job growth has remained strong while wages--which are positively correlated with inflation--have remained relatively subdued. This combination has proven to be highly beneficial for the stock market as it points to steady economic growth but leaves out the inflationary concerns that typically accompany said growth.

The S&P 500's eleven sectors finished the week mixed, with seven settling in the green and four closing in the red. The financial sector was the top performer, adding 1.5%, followed closely by the industrial group (+1.4%). Within the industrial space, transports showed particular strength, pushing the Dow Jones Transportation Average higher by 2.1%.

On the downside, the energy sector lost 0.7% amid a decrease in the price of crude oil; West Texas Intermediate crude futures declined 1.8% to $57.30 per barrel. The utilities space (-1.0%) also struggled as energy providers like Edison (EIX) faced outages due to wild fires in Southern California; EIX shares lost 11.1% for the week.

Corporate news was pretty light this week, but it's worth noting that CVS Health (CVS) acquired health insurer Aetna (AET) for $207 per share in cash and stock. That price represents a premium of about 29% to where Aetna shares were trading before the Wall Street Journal reported that the companies were in talks in October.

Looking ahead, the Fed is widely expected to announce a rate hike of 25 basis points next week, which would bring the fed funds target range to 1.25%-1.50%.


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