By J Clinton Hill, Capital Markets Strategist @ Hillbent.com
ETF Market Commentary
In prepared testimony before the JEC (Joint Economic Committee) of Congress, Fed Chair Yellen confirmed a bias towards tightening monetary policy at the central bank’s upcoming December meeting. She also indicated her intention to serve until the expiration of her term in 2018, thus giving more time to clearly assess the impact of any forthcoming fiscal stimulus package under President-Elect Donald Trump.
Today’s economic news was consistent with a data dependent Fed’s prevailing view that a return to normalization is still warranted.
- Real Estate / Residential: In October-2016, Housing Starts @ 1.323m vs estimates @ 1.168m and prior revised @ 1.054m. Housing Permits @ 1.229m vs estimates @ 1.19m and prior @ 1.225m.
- Inflation / Consumer: October-2016’s CPI m/m @ 0.4% vs estimates @ 0.4% and prior @ 0.3%, while yr/yr @ 1.6% vs. prior @ 1.5%. Ex food & energy m/m @ 0.1% vs estimates @ 0.2% and prior @ 0.1%, while yr/yr @ 2.1% vs prior @ 2.2%.
- Labor / Unemployment: For the week of Nov-12-2016, Unemployment Claims @ 235k vs estimates @ 257k and prior @ 254k. 4-Week Moving Average @ 253.5k vs prior @ 259.75k.
- Business Sentiment: Philly Fed Business Survey Outlook for November-2016 @ 7.6 vs. estimates @ 8.0 and prior @ 9.7.
Elsewhere, global economic data out of Europe (ex UK) was somewhat less encouraging.
- UK / Retail Sales: For October-2016, actual @ 1.9% vs. estimates @ 0.4% and prior revised @ 0.1%.
- Europe / Inflation: The HICP (Harmonized Index of Consumer Prices) in October-2016 @ 02% m/m vs estimates @ 0.3% and prior @ 0.4%. Yr/yr @ 0.5% vs estimates @ 0.5% and prior @ 0.4%.
- Central Banks / ECB Minutes: The October-2016 meeting revealed lingering concerns for the EU, which are moderate growth subject to downside risks, weakness in wages and underlying inflation. The bank believes that more time is need for its accommodative efforts to take effect.
Equities: In brief summary, stocks, most especially in the USA, have yet to see a deceleration in positive momentum as volume remains relatively robust. Financials (XLF) and Industrials (XLI) continue to dominate the sector landscape. When the shorts have finally finished covering, it will be interesting to see if new buyers will emerge. Again, I will caution that the market is extremely overbought and behaving most irrationally.
Bonds: This is probably the only rational market trading in accordance with underlying fundamentals. Rates are expected to move higher and prices are falling as investors exit or seek safety at the shorter end of the yield curve. It’s a simple as that.
Currencies: The US Dollar (UUP) has very little technical or fundamental resistance in its path. If it clears the triple top, which I highlighted in yesterdays’ currency update, then it will be indicative of a tectonic shifting of capital. The European Central Bank (ECB) and Bank of Japan (BOJ) will be only much too appreciative of a stronger dollar to aid their economic recovery. Such a scenario makes the Euro (FXE) and Yen (FXY) relatively unattractive.
Commodities and Real Estate: Hard assets had another tough go at it and continue to underperform equities due to the above mentioned strength in the dollar and anticipated rate hikes. The one exception, is the Homebuilders (ITB), which is currently enjoying a benign unemployment and interest rate environment. If potential homebuyers perceive rates will rise, this may provide extra incentive to buy sooner rather than defer until later. At some point, reality bites and living with parents or roommates and playing video games loses some of its appeal.
No further comments this evening. (Please refer to ETF summary table below for performance analysis .)
ETF Performance Summary
|RS 1Yr||Exchange Traded Fund||Last||Chg||% Chg|
|100||DJ-30 Industrials (DIA)||189.30||0.32||0.17%|
|67||Emerging Mkts (EEM)||34.75||0.05||0.14%|
|89||Europe FTSE (VGK)||46.07||0.22||0.48%|
|68||Latin America 40 (ILF)||27.23||-0.34||-1.23%|
|78||Pacific Ex-Japan (EPP)||40.38||0.22||0.55%|
|71||FTSE China 25 (FXI)||35.97||0.14||0.39%|
|0||VIX Short-Term Futures (VXX)||29.23||-0.87||-2.89%|
|Major Equity Sectors|
|94||Consumer Discretionary (XLY)||81.45||0.97||1.21%|
|38||Consumer Staples (XLP)||50.68||-0.09||-0.18%|
|85||Real Estate (XLRE)||29.65||-0.28||-0.94%|
|99||Technology / Info (VGT)||120.67||0.95||0.79%|
|Bonds & Fixed Income|
|9||20+ Yr Treasury (TLT)||121.20||-1.81||-1.47%|
|20||Aggregate Bond Fund (AGG)||108.72||-0.41||-0.38%|
|53||Treasury Inflation Protection (TIP)||113.49||-0.19||-0.17%|
|94||Investop Corp Bond (LQD)||117.25||-0.75||-0.64%|
|77||High Yield Corp Bond (HYG)||84.63||-0.23||-0.27%|
|8||Pimco Intermed Muni Bonds (MUNI)||52.78||-0.05||-0.09%|
|4||High Yield Muni (HYD)||29.40||-0.07||-0.24%|
|98||US Dollar Bullish (UUP)||26.10||0.15||0.58%|
|91||Euro Trust (FXE)||103.29||-0.56||-0.54%|
|51||Japanese Yen Trust (FXY)||87.75||-0.70||-0.79%|
|73||DB Commodity Index (DBC)||14.55||0.03||0.21%|
|42||US Oil (USO)||10.13||-0.10||-0.98%|
|38||DJ Real Estate (IYR)||73.46||-0.61||-0.82%|
|91||DJ Home Construction (ITB)||27.34||0.57||2.13%|
|22||Residential Real Estate Index (REZ)||58.46||-0.86||-1.45%|
Signing off @ Hillbent…
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