Weekly Market Update (12/6/17 - 16/6/17)

Tech sector was in focus this week. But wait... AMAZON just bought WHOLE FOODS!!

SP500: 0.06%

The stock market was fairly flat this week, especially in the second half, as investors chewed on a host of headlines, most notably of which was the FOMC's latest rate-hike decision. The S&P 500 registered three losses and a new record high this week, eventually settling with a slim gain of 0.1%. The Dow (+0.5%) and the Nasdaq (-0.9%) settled on opposite sides of the S&P 500.

After plunging nearly 3.0% last Friday, the top-weighted technology sector registered another notable decline in the first session of the week, losing 0.8%, as mega-cap names like Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), and Facebook (FB) weighed. Amazon (AMZN) also underperformed, but the consumer discretionary sector, like the S&P 500, was able to escape with just a slim loss.

The tide turned in the bulls' favor on Tuesday as the aforementioned companies bounced back from their two-day declines. The technology and consumer discretionary sectors led the advance, pushing both the benchmark index and the Dow to new record highs. However, the S&P 500's gain was capped at 0.5% as investors approached Wednesday's FOMC rate decision with caution.

As expected, the FOMC voted to raise the fed funds target range by 25 basis points to 1.00%-1.25% in the midweek session. The vote was nearly unanimous with Minneapolis Fed President Neel Kashkari being the lone dissenter. In addition, the Fed laid out a specific plan for how it will start to normalize its balance sheet and revealed that the median FOMC member expects one additional rate hike in 2017.

The Treasury market held a big gain going into the decision, underpinned by weak CPI and retail sales readings for May, but gave back a portion of that advance in the aftermath. However, in the equity market, the S&P 500 hardly deviated from its unchanged mark as investors continued to digest the Fed's policy prescription into the closing bell and beyond.

Equity indices opened solidly lower on Thursday as the market continued to debate whether the Fed might be tightening policy too much and/or too fast. In addition, sentiment was dampened by a Washington Post report that claimed Special Counsel Mueller's investigation of Russia's interference in the U.S. election is broadening in scope to examine whether President Trump tried to obstruct justice.

The technology and consumer discretionary sectors showed relative weakness, yet again, on Thursday morning. However, the two groups were able to reclaim a good portion of their losses as the day went on. A positive performance from the industrial sector, which was led by names like Caterpillar (CAT), General Electric (GE), and Boeing (BA), helped keep the S&P 500's loss (-0.2%) in check.

On Friday, Amazon (AMZN) dominated the headlines after announcing that it plans to acquire Whole Foods Market (WFM) for $42 per share in cash. Big-box retailers like Wal-Mart (WMT), Costco (COST), and Target (TGT) plunged on the news, sending the consumer staples sector to the bottom of the day's leaderboard. However, the S&P 500 still managed to eke out a slim victory.

It's also worth pointing out that WTI crude settled the week with a loss of 2.4% following a bearish EIA inventory report on Wednesday, which showed a smaller than expected draw of 1.7 million barrels (consensus -2.5 million barrels) in crude stocks and a build of 2.1 million barrels in gasoline inventories for the week ended May 9. The tumble left the commodity at its worst level since early November.

Despite the Fed's call for a third rate hike in 2017, the fed funds futures market points to the March 2018 FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 50.8%, down from last week's 60.7%. The implied probability of a December rate hike sits at 43.4%, down from last week's 51.7%.

• Nasdaq Composite +14.3% YTD

• S&P 500 +8.7% YTD

• Dow Jones Industrial Average +8.2% YTD

• Russell 2000 +3.6% YTD​

(extracted from www.briefing.com)

Sector Performance:

Technology sector continues their slide from previous week. Staples dropped mainly on Friday because Amazon acquisition of Whole Foods Market led a broad selling of other players. Industrials sector is being credited to have lifted SP500 in check despite weaknesses in Staples, Materials, and Technology. It's worth noting that Utilities sector has showed continued strength from previous weeks.

Yield Performance:

After shifting upwards in parallel last week, this week the yield curve flattened a bit, indicating doubts from the bond investors.

Commodities performance:

Crude oil closed lower.

Gold closed lower.

Silver closed lower.

Copper closed lower.

Week 25 BMO:

Week 25 has been historically weak with 60% reliability of recording negative returns over the last 5 years, 80% and 87% chance of being bearish over the last 10 years and 15 years respectively. Week 25 is arguably the weakest week of June with rather high reliability factor.

Info: Stock Trader's Almanac 2017

• Week after June Triple Witching, Dow down 23 of last 26. Average loss since 1990 is 1.1%.

According to the almanac, Monday should close higher and then slowly shows its weaknesses towards the end of the week, especially on Friday as the most bearish day of the week.

Key Economic Dates:

Thoughts:

The coming week would be busy week for several FOMC members as there will be quite a number of speaks during the first two days of the week, overall it will be a week with light data. If you could recall, the seasonality of June is being bearish over the last 15 years. Right until this day, SP500 has registered 0.23% loss, mainly because of the weakness in technology sector after a strong run. In fact, according to the seasonal scanner, tech sector (XLK) has showed weakness since Week 24 into week 25 with high reliability. Thus we could expect the technology sector shows continued weakness in the coming week. Taking this together with the SP500 bearishness shown in both seasonal scanner and the almanac, it's reasonable to judge that the coming week would not be an easy week.

#Macros