Sunday, February 12, 2017

Weekly Stock Market Outlook 2/12/2017

U.S. stock indexes extended their climb into record heights early Friday, powered by rising energy prices. Oil and gas companies led the gainers as the price of crude oil headed higher.  Utilities and other key sectors are not rising, which is causing fewer stocks to rise in relationship to the overall market at this time.

Global Economy – World stock markets mostly kept rising on Friday after U.S. President Donald Trump promised he would soon cut taxes for businesses.  In a meeting with airline and airport executives, Trump vowed to roll back government regulations and said he would announce a plan in the next three weeks to reduce taxes for businesses. The comments were short on details, but encouraged investors who have been waiting to see how Trump follows through on campaign promises to boost economic growth.

Markets are awaiting the outcome of Japanese Prime Minister Shinzo Abe’s meetings with Trump on Friday and the weekend. Japanese companies, worried about Trump’s complaints over trade and exchange rates, hope Abe can get him to buy into a job creation and investment package.

Strong January trade data from China brightened investor sentiment. Exports rebounded, expanding nearly 8 percent while imports jumped 16.7 percent. The figures are a good sign for the world’s No. 2 economy, but could also be distorted as factories closed for the Lunar New Year holiday, which falls at different times in the first two months of the year.

U.S. Economy – Consumer confidence retreated in February from a 13-year high, as Americans tempered expectations of their finances and the economy. The University of Michigan said Friday that its preliminary index of sentiment cooled to a three-month low of 95.7 from 98.5 in January. The median projection called for 98.

Expectations for wage gains in the coming year deteriorated even as more respondents said this month that they were better off financially than at any other time in the past 12 years. More than half of those surveyed expect better economic conditions in the future, though the results reflected stark differences between Republicans and Democrats.

Petroleum is lifting import prices which rose 0.4 percent in January for a striking year-on-year rate of 3.7 percent. This is the strongest rate since early in the cycle, back in March 2012.  But the gain is isolated to petroleum which jumped 5.2 percent in the month for a year-on-year gain of 61 percent to underscore how easy energy comparisons have become.  Export prices rose 0.1 percent in the month for a year-on-year rate of 2.3 percent which is also the highest since early in the cycle, back in January 2012. Agricultural prices are closely watched on the export side and fell 0.1 percent in the month for a year-on-year rate of only plus 0.8 percent.

By country, import prices are weakest with China, at a year-on-year minus 1.7 percent, with the EU at minus 0.2 percent. Canada is at the top at plus 13.2 percent which reflects energy.  Overall year-on-year rates are improving but cross-border inflation is fundamentally flat right now. Yet recent weakness in the dollar, which makes foreign products more expensive, will work together with oil to support gains for import prices in the months ahead.

Quarterly Earnings – The bulk of the Q4 earnings season is now behind us, with results from 358 S&P 500 members, or 71.6% of the index’s total membership, already out.  With another 53 index members on deck to report results next week, we will have seen results from more than 80% of the index’s members by then.

For Q4 as a whole, combining the actual results from the 358 S&P 500 members that have reported with estimates for the still-to-come 142 companies, total earnings are expected to be up +7.5% from the same period last year on +3.9% higher revenues.  This would follow the +3.7% growth in Q3 earnings on +2.2% higher revenues, the first instance of positive earnings growth for the index after five quarters of back-to-back declines.

Stock Market Analysis – The SPY ETF that tracks the SP 500 is now at all time highs and 10 day RSI oscillator is moving above 70 level, which tells me that we should expect a pullback or a consolidation near the current price level.

The reason we are seeing stocks rising is because of the large market cap coming from energy stocks, which are supporting higher price at this time.  Anticipate price to back down to the 50 day moving average and more than likely down to the 200 day line, before markets experience significant upside once again.

Expect defensive stocks and commodity stocks to trade higher and speculative stocks to become increasingly weaker in coming weeks. The reason volume is so low right now, is because large institutions are not aggressively trading at this time and markets are being driven by retail traders, which typically ends up in sharp, short term price corrections.

Courtesy of Market Geeks

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