Bipartisanship Approval Meets Market’s Call for M’Aider on May Day

Posted on Posted in Views From The Hill

With European and Asian markets closed for their respective May day and Labor day holidays, US investors looked to Congress to save the day and it did with bipartisan approval of a $1 trillion budget to sustain operations until September 30th. Well, actually it was not quite that dramatic and more or less expected. Besides that, it balanced the latest display of “shock and awe” from Trump, who said he is “looking” to break up the banks.

All drama aside, the distraction of a government shutdown is something neither the GOP or White House can afford as they confront “less bigger but more important” things than our national debt, e.g. tax reform. It should be footnoted that this emergency funding makes no provision for Trump’s Wall or Infrastructure Spending, two of his campaign promises to make America great again. Give GOP budget hawks where credit where credit is due.

On the economic front, data was somewhat disappointing, albeit generally positive. Deceleration in seems to be picture forming as the dots from hard data are connected over time, not only in the US but China, the world’s 2nd largest economy, as well.

  • Regarding the US Consumer, Personal Income & Outlays for March-2017 disappointed with Income @ 0.2% vs consensus @ 0.3% and Spending @ 0.0% vs consensus @ 0.1%. More importantly, the Core PCE Index, a major gauge for inflation, @ 1.8% is below the 2.00% target rate.
  • The April-2017 US Manufacturing PMI, although still in expansionary mode, indicated deceleration. It registered a reading @ 52.8 vs previous @ 53.3.
  • Meanwhile, the ISM Manufacturing Index pulled back sharply to 54.8 vs prior @ 57.2 and consensus @ 56.2.
  • By all indications, US Construction Spending in March-2017 was weaker than prior readings. Monthly, it contracted –0.2% vs consensus @ 0.5% and previous @ 1.8%; while yearly was @ 3.6% vs prior @ 5.4%.
  • China Manufacturing PMI reported @ 51.2 vs forecasts @ 51.7, thus marking its slowest pace of expansion in 6 months.

 

Market Direction Notes

Equities

  • The SP-500 and DJ-30 Industrials are consolidating and building support for another potential cup-with-handle breakout.
  • Nasdaq-100 and Nasdaq Composite made new all-time highs today.
  • Small-cap Russell-2000 is fading resistance and made a new 5-day low.

Upgrades

  1. Dunkin’ Brands Group (DNKN) to ‘Outperform’ from ‘Sector Perform’ at RBC Capital Markets with a target price of $64.
  2. Autodesk (ADSK) to ‘Overweight’ from ‘Equal Weight’ at Morgan Stanley with a price target of $115.
  3. First Solar (FSLR) to ‘Neutral’ from ‘Underperform’ at Credit Suisse.

Downgrades

  1. L3 Technologies (LLL) to ‘Equal-Weight’ from ‘Overweight’ at Barclays.
  2. Thompson Reuters (TRI) to ‘Hold’ from ‘Buy’ at Canaccord Genuity.
  3. Apartment Investment (AIV) to ‘Neutral’ from ‘Buy’ at Mizuho Securities USA.
  4. Discover Financial Services (DFS) to ‘Hold’ from ‘Buy’ at Deutsche Bank.
  5. Synchrony (SYF) to ‘Neutral’ from ‘Buy’ at Goldman Sachs.

 

Bonds

  • 10-Year Treasury Rates, since bottoming on April 18th, are now consolidating. Resistance is currently @ 2.35%.
  • There has been much fanfare in the bond market about the rally in bonds off their March-2017 lows, but, truth be told, to bearish trend initiated in the 10-Yr Note since it peaked in July-2016 is intact as this benchmark security trades remains within its bearish channel. At best, this is a range-bound market.

 

Currencies

  • The US Dollar Index ($DXY) is still attempting to find support over the last 5 trading sessions. So far, it has been successful, but the overall trend indicates it is still vulnerable to volatility on the downside.

 

Commodities

  • Crude Oil prices continue to be pressured by expanding supplies. Libya’s crude production is now over 700k bpd as its Sharara field, the country’s biggest, began flowing after a 3-week closure. US Oil production is also increasing. According to the latest Baker Hughes report on the # of active oil drilling rigs increased by 9 to 697. The June-2017 contract for WTI Crude made a new 24-day low @ 48.59 as it flirts with a new support test @ $48 and encounters resistance @ $50.
  • The June-2017 Gold contract made a new 13-day low to 1254.90 and is testing support of it bullish channel initiated back in early December-2016.
  • Copper (HG-July-2017) prices broke out to a new 1-month high and cleared resistance of its short-term bearish channel. Freeport McMoran’s (FCX) Grasberg mine in Indonesia is vulnerable to a strike if labor disputes cannot be resolved.

 

Real Estate

  • The DJ Real Estate Index (DJUSRE) is now attempting a bullish reversal, which should be expected given the bullish channel it has yet to violate. The recent correction since mid-April is nothing more than that, i.e. a correction.

 

Market Performance Summary

RS 1Yr Exchange Traded Fund Last Chg % Chg
  Equities  
94 DJ-30 Industrials (DIA) 208.92 -0.16 -0.08%
96 SP-500 (SPY) 238.68 0.60 0.25%
99 Nasdaq-100 (QQQ) 137.20 1.21 0.89%
94 Russell-2k (IWM) 139.86 0.80 0.58%
99 EAFE (EFA) 64.06 0.26 0.41%
99 Emerging Mkts (EEM) 40.29 0.23 0.57%
99 Europe FTSE (VGK) 53.79 0.21 0.39%
85 Latin America 40 (ILF) 31.59 0.21 0.67%
79 Brazil (EWZ) 37.47 0.30 0.81%
96 Japan (EWJ) 52.06 0.20 0.39%
99 Pacific Ex-Japan (EPP) 45.21 0.39 0.87%
86 FTSE China 25 (FXI) 38.60 0.07 0.18%
0 VIX Short-Term Futures (VXX) 14.45 -0.56 -3.73%
     
  Major Equity Sectors  
96 Consumer Discretionary (XLY) 90.18 0.12 0.13%
83 Consumer Staples (XLP) 54.97 -0.21 -0.38%
28 Energy (XLE) 67.65 -0.19 -0.28%
75 Financials (XLF) 23.68 0.15 0.64%
90 Healthcare (XLV) 75.67 0.17 0.23%
93 Industrials (XLI) 66.14 -0.20 -0.30%
93 Materials (XLB) 53.10 0.03 0.06%
48 Real Estate (XLRE) 31.85 0.20 0.63%
100 Technology / Info (VGT) 140.04 1.24 0.89%
61 Telecom (IYZ) 33.86 -0.15 -0.44%
79 Utilities (XLU) 51.39 -0.31 -0.60%
     
  Bonds & Fixed Income  
17 20+ Yr Treasury (TLT) 121.08 -1.27 -1.04%
27 Aggregate Bond Fund (AGG) 108.73 -0.28 -0.26%
52 Treasury Inflation Protection (TIP) 114.34 -0.39 -0.34%
31 Investop Corp Bond (LQD) 118.30 -0.37 -0.31%
91 High Yield Corp Bond (HYG) 87.79 0.04 0.05%
37 Pimco Intermed Muni Bonds (MUNI) 53.10 -0.02 -0.03%
55 High Yield Muni (HYD) 30.58 0.03 0.09%
     
  Currencies  
57 US Dollar Bullish (UUP) 25.59 0.02 0.08%
41 Euro Trust (FXE) 105.57 0.05 0.05%
31 Japanese Yen Trust (FXY) 86.14 -0.25 -0.29%
     
  Commodities  
45 DB Commodity Index (DBC) 14.83 0.03 0.20%
52 Gold (GLD) 119.67 -1.10 -0.91%
29 US Oil (USO) 10.15 -0.09 -0.88%
     
  Real Estate  
53 DJ Real Estate (IYR) 79.41 0.48 0.61%
94 DJ Home Construction (ITB) 32.31 -0.02 -0.06%
50 Residential Real Estate Index (REZ) 63.67 0.06 0.09%

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