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Daily Sector Wrap

Updated: 20-Jul-18 16:29 ET
Flat Week Ends With Flat Friday Session

Stocks finished a range-bound Friday session little changed, shrugging off potentially rattling comments from President Trump. The S&P 500 and the Nasdaq Composite both lost 0.1%, while the Dow Jones Industrial Average finished unchanged. Friday's stumble left the S&P 500 flat for the week.

In a CNBC interview aired on Friday morning, President Trump said he is ready to put tariffs on $500 billion worth of Chinese goods -- approximately the entire amount of goods shipped to the U.S. from China in 2017. Later, in a tweet, the president doubled down on his criticism of the Fed, saying rate hikes hurt what his administration has accomplished, and reiterated his concern over a strengthening dollar.

The U.S. Dollar Index tumbled 0.8% to 94.20 in response to the president's comments, retreating from a 12-month high.

Microsoft (MSFT 106.27, +1.87) headlined the earnings front, climbing 1.8% on the back of a better-than-expected quarterly report. Its outperformance helped the top-weighted technology sector get off to a good start -- the group was up as much as 0.7% -- but the bullish momentum faded as the day wore on. The tech group finished higher by 0.1%.

Elsewhere on the earnings front, Honeywell (HON 153.13, +5.59) and Capital One (COF 97.23, +1.86) also rallied on better-than-expected results, adding 3.8% and 2.0%, respectively. However, General Electric (GE 13.12, -0.61) declined 4.4% despite beating estimates, and Skechers (SKX 26.27, -6.98) plunged 21.0% after missing estimates and issuing disappointing guidance.

The consumer staples sector (+0.6%) was the top-performing group on Friday, and financials (+0.2%) eked out a slim victory. Meanwhile, eight of the eleven sectors finished in the red, with utilities (-0.8%) and real estate (-0.9%) being the weakest performers. No other space lost more than 0.5%.

In the bond market, Treasuries sold off in a curve-steepening trade, with the 2-yr yield climbing one basis point to 2.60% and the 10-yr yield climbing five basis points to 2.90%. Some analysts saw the increased 2-10 spread as a sign that investors believe President Trump's criticism of the Fed could slow down the pace of rate hikes.

The S&P 500 tested the 2800 level several times on Friday, but it held through each attempt, with the low of the day coming in at 2800.01.

Investors did not receive any economic data on Friday. Looking ahead, Existing Home Sales for June is the lone release on Monday.

  • Nasdaq Composite +13.3% YTD
  • Russell 2000 +10.5% YTD
  • S&P 500 +4.8% YTD
  • Dow Jones Industrial Average +1.4% YTD

Week In Review: Investors Shrug Off Headline-Heavy Week

There were a heap of headlines out of Washington this week, but Wall Street kept its cool, finishing little changed. The S&P 500 finished flat, while the Dow Jones Industrial Average finished a tick higher (+0.2%), and the Nasdaq Composite finished a tick lower (-0.1%). The small-cap Russell 2000 outperformed, rallying 0.6%.

President Trump capped a week-long trip to Europe on Monday by meeting with Russian president Vladimir Putin in Helsinki, Finland. The leaders met for roughly four hours, discussing a wide range of topics, including arms control, the future of Syria, and, of course, Russian interference in the 2016 U.S. election, which Mr. Putin again denied.

Mr. Trump faced criticism for appearing to reject his own intelligence agencies' conclusion that Russia meddled in the election in favor of Mr. Putin's plea of innocence. President Trump later clarified his remarks, replacing the word would with wouldn't in the following statement referring to Russian interference: "I don't see any reason why it would be [Russia]."

On to U.S.-China trade relations, NEC Director Larry Kudlow said on Wednesday that he believes some lower-ranking Chinese officials would like to reach a trade deal, but Chinese President Xi is refusing to compromise. China's foreign ministry responded to Mr. Kudlow's comment, calling it "shocking" and "bogus."

Back to Mr. Trump, the president did an exclusive interview with CNBC on Thursday in which he criticized the Fed, saying he's "not thrilled" about interest rate hikes, and said he is willing to slap tariffs on $500 billion worth of Chinese goods -- virtually every Chinese product coming into the U.S. -- if necessary. Mr. Trump also commented on the strengthening dollar, saying it puts the U.S. at a disadvantage.

The president followed up that interview with a tweet on Friday, saying "China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day - taking away our big competitive edge...Tightening now hurts all that we have done."

Mr. Trump's comments on the Fed were particularly controversial as presidents typically refrain from speaking on monetary policy in an effort to protect the Fed's independence. The White House issued a follow-up statement after the CNBC clip aired on Thursday, clarifying that Mr. Trump respects the Fed's independence.

On a separate -- but related -- note, Fed Chair Jerome Powell gave Congress his semiannual update on the economy and monetary policy, speaking before both the Senate Banking Committee and the House Financial Services Committee. Mr. Powell's testimony provided no new information; he simply reinforced the view that improving economic conditions should allow the Fed to continue hiking rates gradually.

Whew. With all of that in mind, let's turn away from Washington and towards this week's trading on Wall Street.

The second quarter earnings season heated up this week with several influential names reporting their latest results. Netflix (NFLX) dropped sharply on Tuesday -- although shares did rebound notably intraday -- after the streaming media company missed subscriber growth estimates. Ahead of earnings, Netflix was up more than 100% on the year.

Fellow tech names Microsoft (MSFT), IBM (IBM), and eBay (EBAY) also reported their quarterly results this week. Microsoft and IBM rallied after beating earnings estimates, but eBay tumbled after reporting below-consensus results. The top-weighted technology sector finished the week with a gain of 0.1%, extending its yearly advance to 15.4%.

Several financial giants also reported earnings this week, including Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS), all of which topped estimates. The positive results helped the heavily-weighted financial sector climb 2.2% and finish atop the week's sector standings.

In other corporate news, Comcast (CMSA) said it will not counter Disney's (DIS) offer for 21st Century Fox's (FOXA) entertainment assets, and Amazon (AMZN) held its annual Prime Day, saying the 36-hour special was its biggest shopping event ever -- even despite having to deal with some technical glitches.

Energy was the worst-performing sector this week, losing 1.9%, as crude oil extended last week's tumble; WTI crude futures dropped 3.9% to $68.23/bbl and are now 8.0% below the nearly three-and-a-half year high they've touched several times this month. Fears that the U.S. may give some countries waivers to continue buying oil from Iran was one of several factors weighing on the commodity.


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