From Briefing.com:4:39 pm Closing Market Summary: S&P 500, Dow Advance to New All-Time Highs (:WRAPX) :
The stock market closed the week on a positive note with the S&P 500 (+0.5%) and the Dow (+0.4%) both advancing to new record highs. Meanwhile, the Nasdaq climbed 0.6% and finished just nine points below its record close. For the week, the S&P 500 moved higher by 1.4%, which marks its best weekly performance since the end of May.
Financial heavyweights JPMorgan Chase (JPM 92.25, -0.85, -0.9%), Citigroup (C 66.72, -0.30, -0.5%), and Wells Fargo (WFC 54.99, -0.61, -1.1%) unofficially kicked off the second-quarter earnings season on Friday morning with all three companies beating earnings per share estimates. However, the banks sold off nonetheless as their results weren't quite good enough, at least in the market's mind, to extend the six-week bullish run that they rode into Friday's session.
The heavily-weighted financial sector (-0.5%) opened the session with a sizable loss of around 1.5%, but the group immediately started chipping away. The sector reduced its loss to 1.0% within the first 30 minutes of action and nearly reached its flat line in the afternoon. Selling in the last few minutes left the group a step below its session high.
Technology--the only sector with more influence than the financial group--cruised to its sixth-consecutive win on Friday, which helped keep a lid on the financial sector's bearish influence. The tech group rose 0.9% with just about all of its components finishing in positive territory. Microsoft (MSFT 72.78, +1.01) was particularly bullish, finishing the day with a gain of 1.4%.
The health care group (+0.6%) also finished ahead of the broader market despite a relatively disappointing performance from the biotechnology industry; the iShares Nasdaq Biotechnology ETF (IBB 316.41, 0.00) finished right at its unchanged mark. As for the remaining advancers, gains ranged from 0.2% (telecom services) to 1.1% (real estate).
Crude oil locked in a weekly gain of 5.3% with a 1.1% advance on Friday. Reports of supply issues in Nigeria, which is currently exempt from the OPEC-led production cut agreement, helped underpin the commodity. WTI crude settled at a price of $46.58/bbl while the energy sector (+0.5%) settled in line with the benchmark index.
In the bond market, U.S. Treasuries rallied on weaker than expected economic data, which was highlighted by below-consensus readings for June Retail Sales (-0.2% actual vs +0.1% consensus) and June core CPI (+0.1% actual vs +0.2% consensus). The benchmark 10-yr yield finished three basis points lower at 2.32% while the 2-yr yield dropped one basis point to 1.36%.
Reviewing Friday's big batch of economic data, which included June CPI, June Retail Sales, the June Industrial Production and Capacity Utilization Report, May Business Inventories, and the preliminary reading of the University of Michigan Consumer Sentiment Index for July:
Total CPI was unchanged (Briefing.com consensus 0.0%) in June while core CPI, which excludes food and energy, increased 0.1% (Briefing.com consensus 0.2%). On a year-over-year basis, total CPI is up 1.6% and core CPI has increased 1.7%.
The key takeaway from this report is that the trend of disinflation for the Consumer Price Index, which began in March, remained intact and will force the Fed to take more time to determine if it ultimately flows through and undercuts the stable trend in core CPI.
June retail sales decreased 0.2%, which is below the Briefing.com consensus of +0.1%. The prior month's reading was revised to -0.1% from -0.3%. Excluding autos, retail sales decreased 0.2% while the Briefing.com consensus expected an increase of 0.2%. The prior month's reading was left unrevised at -0.3%.
Core retail sales is the component that factors into the PCE goods component of the GDP report, so the key takeaway from the retail sales data is that it points to weak spending on consumer goods in June and will be a negative input for Q2 GDP models.
Industrial Production increased 0.4% in June (Briefing.com consensus 0.4%) while Capacity Utilization ticked up to 76.6% (Briefing.com consensus 76.8%) from a revised reading of 76.4% in May (from 76.6%). The Industrial Production reading for May was revised to 0.1% from 0.0%.
The key takeaway from the report is that factory output in June was little different from where it was in February. Additionally, the low level of capacity utilization points to continued resource slack that will temper inflation expectations.
Business Inventories rose 0.3% in May, which is in line with the Briefing.com consensus. The prior month's reading was left unrevised at -0.2%.
The key takeaway from the report is that business inventories remain elevated relative to sales, which is standing in the way of restoring pricing power.
The preliminary reading of the University of Michigan Consumer Sentiment Index for July declined to 93.1 (Briefing.com consensus 95.1) from 95.1 in June.
The key takeaway from the report is that it is fitting a pattern seen around past cyclical peaks, whereby the assessment of current conditions hits new peaks at the same time expectations start to post significant declines.
Monday's economic data will be limited to the Empire Manufacturing Report for July (Briefing.com consensus 13.0), which will be released at 8:30 ET.
Nasdaq Composite +17.3% YTD
S&P 500 +9.9% YTD
Dow Jones Industrial Average +9.5% YTD
Russell 2000 +5.3% YTD
Week In Review: Yellen Sparks Second-Half Rally
The stock market got off to a slow start this week, but Fed Chair Janet Yellen's semiannual testimony before Congress sparked a rally in the midweek session that lingered all the way into Friday's closing bell. In the end, the S&P 500 registered its largest weekly gain since the end of May and settled Friday's session at a new record close. For the week, the S&P 500 advanced 1.4%.
For the most part, the first two sessions of the week were uneventful. The stock market did make a sharp move lower on Tuesday after Donald Trump Jr. tweeted an email exchange that involved him setting up a meeting with a Russian lawyer in an attempt to gain some possibly incriminating information on then-presidential candidate Hillary Clinton. However, the bearish sentiment didn't last and the S&P 500 entered Wednesday's session flat for the week.
Equities rallied in the midweek session after Fed Chair Janet Yellen's semiannual monetary policy testimony came off less hawkish than many were anticipating. One of the key takeaways from Ms. Yellen's prepared remarks was her acknowledgment that "the federal funds rate would not have to rise all that much further to get to a neutral policy stance." The statement created a sense that the Fed may in fact follow a shorter path of rate hikes that will keep the longer-run neutral level of the federal funds rate below levels that prevailed in previous decades.
The S&P 500 leaned on its most influential sectors, namely technology and financials, to capture its third win of the week on Thursday. The financial sector's positive performance was particularly notable as the group plays an important role in driving economic activity and had failed to keep pace with the broader market in the three prior sessions. Financials remained a focal point once again on Friday with JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) headlining the earnings front.
All three of the aforementioned banks reported better than expected earnings--with JPM and C also beating revenue estimates--but the results were just not enough, at least in the market's mind, to justify the bullish six-week run that JPM, WFC, and C rode into Friday's session. The financial sector settled in the red, losing 0.5%, but the S&P 500 managed to advance to a new all-time high thanks to gains from ten of its eleven sectors.
In addition to earnings, economic data was also a focal point on Friday as below-consensus retail sales and core CPI readings for the month of June prompted a rally in the Treasury market; the benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, dropped three basis points to 2.32%, ending the week with a seven-basis point loss.
Like Treasury yields, rate-hike expectations were also dialed back a bit this week. However, the fed funds futures market still points to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 50.6%. This time last week, the implied probability of a December rate hike sat at 59.1%.
Tech Stocks from Briefing.com
Technology stocks and the broader market finished a strong week on an impressive note. Technology (XLK) stocks rose 0.9% while the Nasdaq 100 (QQQ) rose 0.8%, outpacing the gains seen in the broader market (SPY +0.5%), although the DJIA and S&P 500 closed at new all-time highs while the QQQ lags after leading to the downside in the quick corrective move we saw in late June. Semiconductiors (SMH +1.2%) hit a one month high.
Some notable technology stocks warned about second quarter results:
CyberArk (CYBR) fell 16% after the company warned about second quarter results. This marks the first time the company missed expectations since the company came public almost three years ago. The company said "The primary reason for our revenue shortfall was our performance in EMEA, where certain deals that we anticipated would close did not close by the end of the quarter. We are actively working to determine and implement the appropriate steps to improve execution, drive stronger results and enhance visibility into our EMEA performance." Deutsche Bank and JP Morgan downgraded the stock this morning but the stock did find support in the low 40s.
Acacia Communications (ACIA) fell 6.5% after the company lowered Q2 guidance and guided Q3 vbelow consensus this morning. This follows a guide-up from optical peer AOI (AAOI +7%) yesterday. "Our second quarter results were adversely affected by the quality issue identified at one of our three contract manufacturers that we announced on May 31. As we previously announced, we identified a circuit board cleaning process as the likely root cause of the quality issue. This cleaning process was eliminated and manufacturing at the impacted contract manufacturer resumed. Although we began to ramp manufacturing capacity with our contract manufacturers during the quarter, we experienced supply constraints as capacity was used to both build replacement units and to meet new demand from customers for our AC400 and CFP units," said Raj Shanmugaraj, President and Chief Executive Officer of Acacia Communications. "We anticipate completing our remediation efforts with respect to the remaining impacted units during the third quarter of 2017." "While we are disappointed with the impact that the quality issue had on second quarter results, looking ahead to the third quarter, we believe we are well positioned to meet customer demand for our products This is the third disappointing quarter in row from Acacia after their first two reports after the IPO last year were incredibly strong. A 300%+ return from the IPO has now seen a 70% drawdown.
A10 Networks (ATEN) fell 16% after lowering second quarter guidance. The company said 'a number of opportunities in our pipeline did not close primarily in North America and to a lesser degree in Japan.'Twitter (TWTR +2%) hit a nine-month high after the company hired a former VP at Intuit (Ned Segal) as CFO. On Tuesday
Himax Tech (HIMX +1%) rose despite Oppenheimer downgrading the stock to Underperform. They don't see a turnaround for the core DDIC business.
Nutanix (NTNX) rose 9% after Goldman Sachs added it to their Conviction Buy List, calling it a takeover candidate.
Cowen downgraded Snap (SNAP -2.5%) to Market Perform, killing yesterday's bounce from an upgrade.
Some of the biggest tech stocks in the world will report next week. NFLX will report on Monday afternoon, IBM on Tuesday afternoon, QCOM on Wednesday, SAP and CHKP on Thursday morning and MSFT, V, EBAY, SWKS, MXIM on Thursday afternoon.
