Briefing.com

Daily Sector Wrap

Updated: 20-Oct-17 16:37 ET
Another Record Finish Following Senate Vote

Dow Jones Industrial Average +0.7%; Nasdaq Composite +0.4%; S&P 500 +0.5%; Nasdaq 100 +0.3%; Russell 2000 +0.5%; S&P 400 +0.6%

U.S. equities advanced to new record highs once again on Friday after the Senate passed a budget blueprint for 2018, which was seen as an important step for an eventual tax overhaul. The Dow (+0.7%) led Friday's advance, closing at a record high for the fifth session in a row. The S&P 500 (+0.5%) also notched its fifth straight record close, while the Nasdaq (+0.4%) registered its third record finish of the week.

The major indices opened with gains of around 0.3% apiece and slowly extended those gains into the afternoon, eventually settling near their session highs.

Financial stocks were particularly bullish following the Senate vote, with heavyweights like Goldman Sachs (GS 244.73, +4.74), Wells Fargo (WFC 54.92, +1.17), and Bank of America (BAC 27.17, +0.59) adding at least 2.0% apiece. The S&P 500's financial sector finished at the top of the day's sector standings with a gain of 1.2%.

The risk-on tone was present outside the equity market as well, sending safe-haven assets into negative territory. U.S. Treasuries moved lower in a curve-steepening trade--which added an additional boost to lenders. The benchmark 10-yr yield jumped six basis points to 2.38%, while the 2-yr yield climbed one basis point to 1.57%.

Higher yields increased the demand for the U.S. dollar, sending the U.S. Dollar Index higher by 0.6% to 93.57. The greenback showed particular strength against the Japanese yen--which is considered a safe-haven asset--climbing 0.8% to 113.50. On a related note, gold declined by 0.8% to $1,280.30/ozt.

Industrial heavyweight General Electric (GE 23.83, +0.25) faced heavy selling at the opening bell after missing earnings estimates and issuing disappointing earnings guidance for fiscal year 2017. However, after opening with a loss of around 8.0%, the company bounced back to end the day with a gain of 1.1%. The industrial sector (+1.1%) finished right behind financials at the top of the leaderboard.

Meanwhile, the top-weighted technology sector also had a solid showing, adding 0.7%. PayPal (PYPL 70.97, +3.72) was the group's strongest component after reporting better-than-expected earnings and revenues and issuing upbeat revenue guidance for the fourth quarter. PYPL shares finished higher by 5.5%.

On the flip side, the consumer staples sector struggled, finishing with a loss of 0.2%. Within the group, Procter & Gamble (PG 88.25, -3.34) showed particular weakness, despite reporting above-consensus earnings. P&G shares dropped 3.7%. The only other sector to finish in negative territory was real estate (-0.1%).

After passing the budget blueprint, the next step for the Senate will be to reconcile its version of the budget with the version that the House passed earlier this month. This could be a challenge as the two budget resolutions conflict on the deficit; the House version is deficit-neutral while the Senate's calls for a $1.5 trillion increase in the deficit over a decade.

However, if the two sides can come to an agreement, Republicans will have the ability to pass tax reform without any support from the Democrats under the reconciliation process--which requires only a simple majority in the Senate versus the typical 60-vote threshold.

Reviewing Friday's economic data, which included September Existing Homes Sales and the Treasury Budget for September:

  • Existing home sales for September increased 0.7% from August to an annualized rate of 5.39 million units while the Briefing.com consensus expected a reading of 5.29 million. The prior month's reading was left unrevised at 5.35 million.
    • The key takeaway from the report is that notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability.
  • The Treasury Budget for September showed a surplus of $8.0 billion versus a surplus of $33.4 billion for September 2016.

Investors will not receive any economic data on Monday.

  • Nasdaq Composite +23.2% YTD
  • Dow Jones Industrial Average +18.0% YTD
  • S&P 500 +15.0% YTD
  • Russell 2000 +11.2% YTD

Sector performance as indicated by corresponding ETFs: Technology +0.7% (+30.9% YTD), Health Care +0.1% (+21.8% YTD), Materials +0.9% (+17.9% YTD), Industrials +1.1% (+15.2% YTD), Financials +1.2% (+14.4% YTD), Utilities +0.1% (+12.8% YTD), Consumer Discretionary +0.2% (+12.2% YTD), Real Estate -0.1% (+6.2% YTD), Consumer Staples -0.2% (+4.4% YTD), Energy +0.3% (-9.4% YTD), Telecom Services +0.2% (-12.4% YTD)

Week In Review: October Rally Continues

The stock market advanced once again this week, notching a new record high in all five sessions, as investors digested another batch of third quarter earnings. The S&P 500 finished higher by 0.9%, while the Dow (+2.0%) did noticeably better and the Nasdaq (+0.4%) did modestly worse. For the month, the S&P 500 has added 2.2%.

Equities had their best performance on Friday after the Senate voted in favor of a budget blueprint for 2018--a crucial step for an eventual tax overhaul. If the upper chamber can reconcile its version of the budget with the version the House passed earlier this month, Republicans will have the ability to pass tax reform without any support from the Democrats under the reconciliation process.

The S&P 500's financial sector (+2.0%) was in focus for much of the week thanks to heavyweights like Goldman Sachs (GS) and Morgan Stanley (MS), both of which reported third quarter results on Tuesday morning. Goldman Sachs initially sold off following its release, but bounced back later in the week to finish higher by 2.6%. Morgan Stanley did even better, climbing 4.9%.

Health care stocks also rallied this week, with Dow components UnitedHealth (UNH) and Johnson & Johnson (JNJ) pacing the advance. The two companies ended the week higher by 7.8% and 4.4%, respectively, after reporting better-than-expected earnings on Tuesday. The health care sector added 1.8%, finishing right behind financials at the top of the leaderboard.

Technology giant IBM (IBM) had a strong week, surging 10.2%, after reporting better-than-expected profits and sales on Tuesday afternoon. The company's positive performance helped the top-weighted technology sector climb 1.0% and helped the price-weighted Dow Jones Industrial Average finish comfortably above the other major indices.

Telecom stocks within the S&P 500 finished slightly ahead of the broader market. Wireless giant Verizon (VZ) was a positive influence, climbing 3.5%, as investors rallied around its above-consensus earnings. The telecom services sector added 1.1% this week, but the advance did little to change the group's overwhelmingly bearish October trend; telecoms have dropped 4.7% month-to-date.

The consumer staples sector finished at the very bottom of the sector standings with a loss of 1.2%. Procter & Gamble (PG) and Phillip Morris (PM) were among the most notable laggards within the group. P&G slipped 5.2% despite reporting above-consensus earnings, while Phillip Morris lost 3.9% after missing both top and bottom line estimates and issuing disappointing guidance.

Speculation surrounding President Trump's Fed Chair nomination heated up this week. Current Fed Chair Janet Yellen could be appointed for another four-year term, but reports indicate that Fed Governor Jerome Powell and Stanford University economist John Taylor are the two leading candidates. Fed Governor Kevin Warsh and chief economic advisor Gary Cohn are also still in the mix.

Following this week's events, the CME FedWatch Tool places the chances of a December rate hike at 93.1%, up from 82.9% last week.


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