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FactSet StreetAccount Summary - US Weekly Recap: Dow (0.87%), S&P (1.10%), Nasdaq (0.33%), Russell (0.81%)
12 Sept 2014 07:47 pm
Overview:
• US equities finished lower this week. Newsflow was relatively quiet, with markets generally struggling for direction.
• Most attention revolved around next week's FOMC meeting and a steady rise in Treasury yields. Speculation grew that the Fed would change its forward guidance in the post-meeting statement to allow greater flexibility around the timing of tightening.
• The economic outlook remained largely unchanged due to a light calendar. Retail sales were the highlight, with the headline figure for August increasing as expected, while the ex-autos measure beat the consensus.
• Geopolitical developments were limited. President Obama's announcement regarding ISIS contained few surprises, Ukraine-Russia tensions remained on the backburner, while there was limited US impact from concerns about Scottish independence risks.
• The Apple product launch highlighted the corporate calendar, generating generally positive Street reaction that was also reflected in the stock's weekly outperformance.
• Among sell-side conferences, takeaways from the Barclays Global Financials Conference generally met expectations, while comments from the Goldman Sachs Communicopia Conference drove price action among some telecom names.
• Energy was the notable laggard as oil prices came under further pressure. Rising Treasury yields likely hindered utilities and telecom, but helped banks. Tech led gains, helped by Apple and several Internet names.
Focus on FOMC guidance:
• The main story of the week revolved around potential changes to the Fed's forward guidance language. While there had been talk about the issue for some time, speculation of a change at next week's FOMC meeting intensified after the publication of several news articles. Most focused on the likelihood that the FOMC may drop the phrase "considerable time" from its post-meeting statement. The phrase relates to the amount of time that the Fed would keep rates at current levels after the end of QE. Some articles noted that the language change could be a sign of quicker-than-expected tightening, while others said that Fed officials would be attempting to change the language without spurring a sharp jump in bond yields. There was also some focus on a San Francisco Fed paper that said investors may be underestimating the pace of Fed tightening. Treasury yields rose steadily during the week, with the rate on the 10-year jumping 17 bp to ~2.61%.
Economic data mostly positive:
• The recovery narrative remained largely unchanged in a light week of economic releases. Retail sales were the highlight, rising an expected 0.6% in August. Sales ex-autos beat the consensus at +0.3% versus +0.2%. Aside from strength in auto sales, gains in building materials & garden equipment and food services & drinking places were the highlights. Also, July's numbers were revised higher. Consumer confidence numbers were also upbeat, with the Michigan consumer sentiment index for September rising to 84.6 versus a 83.5 consensus, while the final August reading was 82.5 after a preliminary 79.2 figure. Consumer credit data for July showed a notable jump in revolving credit, the component in which credit cards are tracked. The component rose $5.4B versus a $1.8B gain in June after being relatively flat through much of the post-crisis recovery. In employment, the JOLTS report for July showed the number of job openings remained largely unchanged.
Oil weakness weighs on energy:
• Crude oil prices remained under pressure with WTI futures falling to their lowest level since May 2013 at $90.43 on Thursday. Headwinds came from the International Energy Agency (IEA) lowering its 2014 global demand outlook, while the US Energy Information Administration (EIA) and OPEC both lowered their forecasts for 2015 global demand growth. The EIA added that US oil production reached a 28-year high in August. In addition, the WSJ noted on Friday that the average retail price for a gallon of regular gas fell to $3.42, down 3.8% y/y. The decline in oil saw energy finish as the worst performing sector and it is also the laggard over the past three months. There was broad weakness across the sector, with several refiner names selling off sharply, notably WNR (9.4%), VLO (8.7%), HFC (8.2%). The lower energy prices seemed to provide a tailwind for the airline and trucking groups in the industrials sector, with LUV +3.2%, DAL +1.2% and WERN +1.9% among the better performers.
Apple helps tech outperform:
• Tech was the best performer, with gains driven by AAPL +2.7%. Tuesday's product launch was generally well received by the Street, with Goldman Sachs and Atlantic Equities both raising their targets on the stock, although Pacific Crest downgraded it. Recall the stock performed strongly in the lead-up to the event in which the company unveiled the iPhone 6, iPhone 6 Plus, Apple Watch and a new payment process in partnership with major networks and banks called "Apple Pay". There were pockets of strength elsewhere in the sector, notably in Internet with YHOO +8.3% given a lift ahead of the Alibaba IPO, while TWTR +2.8%. P +3.3%, GRPN +4.9% were among other notable outperformers.
Banks broadly stronger:
• After selling off Tuesday, banks recovered over the remainder of the week to post solid gains with the BKX +1.2% as money centers and regionals closed broadly higher. The groups sold off Tuesday seemingly on comments from Fed Governor Daniel Tarullo, who told Congress that the regulator intends to impose a capital surcharge that will require the biggest US banks to maintain larger capital requirements to protect against potential losses. However, concerns later eased, perhaps helped by commentary at the Barclays Global Financials Conference that generally matched Q2 earnings call takeaways. BAC +4.8% was the standout performer, aided by an upgrade at Goldman Sachs, with the firm citing better-than-expected long-term earnings power among the reasons for optimism.
Utilities, telecom underperform:
• The rate sensitive telecom and utilities sectors were the weakest performers after energy. CTL (4.7%) and VZ (3.1%) lagged in telecom, however S +18.9% was a standout performer, helped by positive sell-side commentary and a Cowen upgrade, along with a new iPhone 6 rate plan. Materials lagged, with the precious metals group coming under notable pressure as gold and silver prices extended recent declines. AU (14.6%) and SSRI (7.2%) were among the weakest names. Hospitals were a bright spot for healthcare, reversing from last week's selloff, with CYH +8.1%, THC +6.6%, UHS +3.9%, HCA +3.4% also likely helped after each had its target raised by Goldman Sachs.
We opened above the downward trendline from previous weeks. 4070 is the MM from the Feb TR, we opened against that resistance and was unable to get above. Large move down in the first hour, largest hour bar in the last few weeks.
AWN Low is 4049.50 I believe that gets tested this week, struggle will be at the AWN low. Bears need to keep it below to continue to build selling pressure. I don't think they will get it. We may have some more room below, but I believe we are getting the break down out of the Sept TR that I was expecting. I would also expect some kind of rally over the coming week (FOMC is an excellent catalyst) to at least test the highs.
On the daily, we closed below bull TL, tested the MM at 4070 and was rejected. 3979 is next SMA below, if this is setting up like late July we could get a test of that. If so I believe when the next TL comes into play it could be a force to cause it to pop. (I don't know how soon or how long it will take to happen.) This week is large data drops and news events and I believe will be a week to remember.
We have seen a failed breakdown of last weeks TR. we broke down yesterday and now have rallied back into the range. I believe that the size of this range will continue to expand over the coming days and weeks.