Market Direction: BULLISH alert
issued 9/21/2017
The economyThe U.S. equity market ended a busy week little changed, with the benchmark S&P 500 losing just 0.1%. Meanwhile, the Dow dropped 0.3% this week, while the Nasdaq and small-cap Russell 2000 outperformed, finishing with gains of 0.5% and 1.2%, respectively.
Investors continued to keep an eye on Capitol Hill, where Republican lawmakers are trying to implement the biggest tax overhaul in more than 30 years. The House passed its version of a tax reform bill on Thursday, while the Senate continued to make changes to its version, which now includes a provision to repeal the Affordable Care Act's individual mandate.
Retailers dominated this week's batch of earnings--one of the final batches of the third quarter earnings season.
Shares of Wal-Mart (WMT) jumped 10.9% to a new all-time high on Thursday after the world's largest retailer reported better-than-expected earnings and revenues for the third quarter and issued upbeat profit guidance for fiscal year 2018. Conversely, shares of Target (TGT) tumbled 9.9% on Wednesday after the company issued a disappointing earnings forecast for the holiday season.
Ross Stores (ROST), Gap (GPS), Advance Auto (AAP), Foot Locker (FL), Abercrombie & Fitch (ANF), Buckle (BKE), Shoe Carnival (SCVL), and Hibbett Sports (HIBB) all soared after beating quarterly profit estimates. Most also beat sales estimates, and many provided upbeat guidance.
Unsurprisingly, the S&P 500's consumer discretionary (+1.3%) and consumer staples (+1.0%) sectors, which house retailers, finished near the top of the week's sector standings. The telecom services (+0.8%) group also outperformed, trimming its November loss to 2.1%.
On the flip side, the energy sector (-3.4%) struggled, giving back the prior week's advance and then some. The price of crude oil decreased at the beginning of the week--which didn't bode well for the energy group--but the commodity bounced back on Friday to end the week little changed; West Texas Intermediate crude futures slipped 0.1% to $56.71 per barrel.
Industrial shares also underperformed after General Electric (GE) cut its dividend by half and dialed back its profit forecast for 2018. GE shares ended the week lower by 11.1%, extending their year-to-date decline to 42.4%. The S&P 500's industrial sector lost 1.1% for the week.
In the bond market, U.S. Treasuries moved in a curve-flattening trade, sending the 2yr-10yr spread to its lowest level since 2007. The yield on the benchmark 10-yr Treasury note dropped five basis points to 2.35%, while the 2-yr yield climbed six basis points to 1.72%.
Following this week's events, investors still strongly believe that the Fed will raise rates next month, with the CME FedWatch Tool placing the chances of a December rate hike at 100.0%.
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By the numbers the weekly closing index numbers compared to the initial BULLISH recommendation closing numbers:
Stock Market Closing Numbers
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compared to Recommendation Numbers
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9/21/2017
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11/17/2017
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Difference
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22,359.23
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23,358.24
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999.01
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6,422.69
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6,782.79
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360.10
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2,500.60
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2,578.85
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78.25
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