ALL BLOG CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. ANY REFERENCE TO OR MENTION OF INDIVIDUAL STOCKS, INDEXES, OR OTHER SECURITIES ARE NOT RECOMMENDATIONS AND ARE SPECIFICALLY NOT REFERENCED AS PAST RECOMMENDATIONS OF PATTON WEALTH ADVISORS. ALL GRAPHS, CHARTS, AND TABLES ARE PROVIDED FOR ILLUSTRATION PURPOSES ONLY. EXPRESSIONS OF OPINION ARE ALSO NOT RECOMMENDATIONS AND ARE SUBJECT TO CHANGE WITHOUT NOTICE IN REACTION TO SHIFTING MARKET, ECONOMIC, OR POLITICAL CONDITIONS. IT IS COMMON FOR US TO USE A FUND AS A PROXY FOR AN INDEX OR ASSET CLASS. FOR MORE DETAILS SEE OUR FULL DISCLOSURE HERE.
Week Ending 6/24/2017
- U.S. stocks overall inched higher with continued historic low volatility
- Technology and healthcare stocks surge while energy stocks continue their decline
- International developed country markets, such as those in the U.K, Germany, and Italy, were down meaningfully
- U.S. average home prices continue to increase to record levels
Notable Market Headlines
U.S. stocks notched relatively small gains for the week with large U.S. stocks gaining +0.2% and small U.S. stocks up +0.5%. These relatively modest gains masked the underlying fairly large price movements in various sectors creating a wide gap between the week’s winners and losers.
Technology stocks resumed their trend higher with the sector up +2.7% for the week and now higher by +20.3% for the year. This strength follows a couple of weeks of underperformance for the sector with investors questioning whether many of these stocks have ran up too far too fast. This is of course a good question but one that will only be answered as time passes.
The impressive gains in technology stocks this week were topped by healthcare stocks with the sector gaining +3.7% and is now higher by +17.5% for the year. This strength was attributable to investors’ positive reaction the health-care bill in the Senate which is expected to be good for many healthcare companies.
One sector on the list of losers again was energy stocks lower by -2.7% for the week and are now down -14.8% for the year. A second sector experiencing selling this week was telecommunications stocks. This sector was down more than -3% but is one of the smaller sectors resulting in very little impact on the overall market.
International stocks were mixed with international developed markets down a sharp -1.9% and emerging markets were higher by +0.7%. Among the developed countries getting hit the hardest was the U.K. lower by -3.5%. The selling was widespread though with Italy’s market off -2.5% and Germany’s was lower by -2.2%. One of investors’ concerns is about slowing economic growth. In spite of the losses in developed country markets this week, these markets remain better performers year-to-date than U.S. stocks with developed country stocks up +12.8% year-to-date as compared to +8.8% for large U.S. stocks.
A couple of the less traditional investments, gold and real estate, were both virtually flat for the week. Commodities declined -2.8% for the week, adding to their losses for the year now totaling -15%, as the price of oil continued its decline.
Bonds inched higher in price by +0.1%. There does appear to be active debate among the members of the Federal Reserve responsible for setting interest rate policy as to when they should raise rates again.
Investor Trivia Question
It has now been one year since Brexit, the vote by U.K. citizens to leave the European Union. This was a shock to investors as markets around the world initial spiked lower.
How do you think U.K. stocks have performed relative to the overall European Union since this historic Brexit event?
See below for answer.
Winners and Losers by Sector
Advanced Micro Devices (AMD), a computer chip maker, saw its stock surge +23.8% for the week on the unveiling of details for a new super processing chip. Many of the leading computer manufacturers including Hewlett Packard, Dell, and Lenovo will be debuting products featuring this chip. AMD’s stock has more than tripled the past 12 months and has even outperformed Intel the past 5 years but it has been a wild ride for AMD shareholders as the accompanying graph shows.
Red Hat (RHT), an open source software solutions company, reported strong earnings and its stock jumped +13.2% and is now higher +42.6% year-to-date. Both sales and earnings results were well ahead of analyst expectations. The company was successful at both renewing many of its largest service contracts with customers as well as getting high fees.
Congress’ proposed healthcare bill resulted in a surge higher for many biotech stocks. For many of these stocks, but not all, this week’s gain added to their already significant gains year-to-date. Following are the week’ biggest winners:
- Incyte Corp (INCY): +15.4%
- Regeneron Pharmaceuticals (REGN): +12.5%
- Biogen (BIIB): +11.4%
- Mallinckrodt (MNK): +11.1%
- Gilead Sciences (GILD): +10.0%
- Celgene Corp (CELG): +9.8%
Bed Bath & Beyond (BBBY) reported earnings that disappointed driving its stock lower by -16.1% for the week. Results were below expectations across the board with revenue flat compared to last year and earnings per share dropping by 34%. One bright spot was a 20% increase in digital sales but this did not offset the decline in store traffic and same-store sales.
The list of energy stocks landing on the list of biggest losers for the week is long. The continued decline in the price of oil is the driving force for these stock price declines. As the price of oil continues to decline, investor concerns continue to increase that many energy companies may be unable to meet current earnings expectations. Following are some notable losers for the week:
- Chesapeake Energy (CHK): -10.4%
- Marathon Oil (MRO): -7.9%
- Apache Corp (APA): -7.0%
- Hallibuton (HB): -6.3%
These stocks are all off -23% to -35% in 2017.
Economic Indicator - Reported
New home sales came in stronger than expected with sales of 610,000 homes in May compared to an estimate of 590,000. These strong sales numbers are accompanied by a record-setting average price of $345,800. Not only is strong demand driving prices higher but tighter than normal supply is contributing as well. Existing home sales also came in very strong and above estimates at 5.62 million annualized pace.
The index of leading indicators, 10 indicators that are supposed to provide some indication of economic activity for the next 6 months, increased by 0.3%. This report has been showing signs of slowing the past couple of months after a strong start to the year.
Economic Indicators – Upcoming
The economic calendar for the coming week is fairly quiet.
Durable goods orders for May will be reported with economists expecting a decline of -0.4%.
Another report on housing prices will be reported with expectations that prices rose +0.6% in April. A gain of +0.6% for the month would put the year-over-year gain at +5.9%.
Personal income is expected to have increased by +0.3% in May while personal spending by only +0.1%. The spending number follows what was a decent gain of +0.4% in April. This is an important report providing some insight on the health of the consumer and two-thirds or our economy.
Investor Trivia ANSWER
U.K. stocks have gained only +3% since the Brexit vote while European stocks overall are higher by +18%. No question that, at this point, the vote has been a negative for U.K. stocks.
Source: ETF symbols EWU and EZU
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Any specific securities or investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own situation before making any investment decision including whether to retain an investment adviser.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. This content was created as of the specific date indicated and reflects the author’s views as of that date. Supporting documentation for any claims or statistical information is available upon request.
Past performance is no guarantee of future results. Any comments about the performance of securities, markets, or indexes and any opinions presented are not to be viewed as indicators of future performance.
Investing involves risk including loss of principal.
Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. For more information on specific indexes please see full disclosure here.
Any charts, tables, forecasts, etc. contained herein are for illustrative purposes only, may be based upon proprietary research, and are developed through analysis of historical public data.
All corporate names shown above are for illustrative purposes only and are NOT recommendations.
International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.