by Eli Wright
Without doubt, the biggest event of the past week was the Fed's first (and only) rate hike in 2016. Though markets had already priced in the decision, the big speculation prior to Wednesday's FOMC statement revolved around what sort of forward-looking guidance the Fed would provide. The remainder of the week was dedicated to market reactions to the 25 bp increase and the hawkish tone set by the Fed for plans to boost rates three times during 2017. The US dollar rocketed higher on the news. US equities, however, which had been on tear up until then, fell back slightly.
King dollar ascendant
The greenback may be on the verge of consolidating, but last week in wake of the Fed’s announcement the Dollar Index soared above 103. Despite the slight retracement on Friday, the dollar still appears to have some upside.
The euro fell below 105 as it moved yet closer to parity, while the Japanese yen fell to 117, a ten-month low versus the dollar. Since the US election, the yen has performed even worse than the Mexican peso. The Aussie fell 3.5% on the Fed rate decision, and remains the only major currency that has not yet experienced even a small retracement against the dollar.
Wall Street continues to have room to run
Many thought last week would finally be the week the Dow would hit its next big benchmark... 20,000, while other major indices – the NASDAQ, S&P, as well as the Russell – would get pulled along, each to new all-time record highs.
The Dow, NASDAQ and S&P did each move up, 0.7%, 0.65%, and 0.8% respectively, through Tuesday. However, the rally faltered once the Fed raised interest rates. At the close for the week, the Dow had gained just 0.5%, while the NASDAQ and S&P each slipped lower, 0.1% and 0.03%, respectively.
The US bank sector fell approximately 1%. However, even with the drop, they remain the hottest sector, up more than 20% since just before Trump’s election victory. The sector could easily correct and drive higher this coming week.
Even with last week's pullback, the Dow is still only one rally away from 20,000 points which could conceivably occur this coming week. Should this occur, it's likely the other majors will also move up along with it, providing a small bounce before the holidays, and lower market volumes move in.
Oil up, down, then up again
Oil started the week up more than five percent when major non-OPEC countries agreed to join OPEC in curbing oil production. However, a mixture of profit-taking, a stronger dollar, and questions regarding deal compliance pushed oil lower over the course of the week. It made a comeback on Friday with crude gaining 2.22% to close the week at $52.95 while Brent rose 2.41% to finish at $55.32.
Over the near term, expect the oil roller coaster to continue with prices fluctuating each time rumors of compliance/non-compliance circulate. Currently, Goldman Sachs is calling for H12017 prices of between $55-$60 for the commodity.
Last Week's Biggest Gainers
Telecommunications (+2.26%), Utilities (+1.85%), and Health Care (+1.49%) were the biggest weekly gainers on the S&P. However, it was a mixed bag for best individual stock performances. The top ten gainers included companies operating in the following sectors: tech (NVIDIA Corporation (NASDAQ:NVDA)), energy (Noble Energy (NYSE:NBL) and First Solar (NASDAQ:FSLR)), consumer discretionary (Chipotle Mexican Grill (NYSE:CMG)) and staples (Mondelez (NASDAQ:MDLZ)), REITs (Apartment Investment & Management Co (NYSE:AIV)), biotech (Illumina (NASDAQ:ILMN)) and Big Pharma (Eli Lilly (NYSE:LLY)).
Last Week's Biggest Losers
Retail and apparel were among the biggest losers last week, possibly on the back of the disappointing November retail sales release last Wednesday. Headliners included Nordstrom (NYSE:JWN), Macy’s (NYSE:M), Kohl’s (NYSE:KSS) and Under Armour (NYSE:UAA).
Several energy and oil exploration companies also took a tumble, including Southwestern Energy (NYSE:SWN), EQT (NYSE:EQT), and Range Resources (NYSE:RRC). There was one additional surprise in the commodities sector: mining company Freeport-McMoran (NYSE:FCX), which has gained over 100% on the year, dipped more than 12% last week, as copper prices shifted lower.
What to expect this week
The dollar retraced a bit on Friday, but with higher US interest rates and bond yields still moving up, there’s little impetus for dollar strength to fade. Fed Chair Yellen will speak tomorrow, however, and her comments could influence the dollar’s trajectory. The US third revision on the Q3 GDP estimate will be released on Thursday, where a 3.3% figure is expected—a minimal uptick from previous estimates.
As market volume slows into the holidays next week, it's still possible we'll see a Santa Rally, or something similar.