The S&P 500 traded 0.38% higher for the week, to close on Friday at 2,141.16, despite a drag by the S&P 500 Telecommunication services sector, down 3.80% for the week, after disappointing earnings from Verizon Communications (NYSE:VZ) and Bloomberg’s report of merger talk between AT&T (NYSE:T) and Time Warner (NYSE:TWX). The telecom sector represents about 8.87% of the S&P 500 index.

The S&P 500 Healthcare sector and S&P 500 Biotechnology sub-sector, continue to be under pressure after Vermont Democratic Senator Bernie Sanders sent out a tweet criticizing small biotech company Ariad Pharmaceuticals (NASDAQ:ARIA) on the price of its leukemia drug Iclusig (ponatinib). Sanders’ comment sent Ariad shares tumbling 14.8% on Thursday. The S&P 500 Healthcare sector, which represents about 21.44% in the S&P 500 index, has been under selling pressures since September 2015, when Hillary Clinton, Democratic U.S. presidential candidate, went on a Twitter frenzy and sent out a tweet about “outrageous” price gouging by a pharmaceutical CEO.

The Department of Labor said on Tuesday that the consumer price index (CPI) rose 0.3% in September, in line with economists’ expectations, while core inflation, excluding energy and foods, climbed by just 0.1% in September. The CPI data has no impact on a Fed rate hike decision, as the Fed uses the personal consumption expenditures, excluding food and energy, or core PCE, for its primary inflation gauge.

Federal Reserve Bank of New York President William Dudley said late Wednesday at New York City’s Lotos Club, that he expects the central bank will be able to raise interest rates before year-end if the data are on track to achieve maximum employment and 2% inflation. Ironically, the Federal Reserve Bank of New York came out on Friday and revised its third-quarter 2016 GDP forecast 10 basis points downward, to 2.2% from 2.3%, while trimming its fourth-quarter 2016 GDP forecast by 20 basis points, to 1.4% from 1.6% previously, citing mixed data in the housing sector and in regional surveys, or Fed Beige Book.

The Federal Reserve Bank of Atlanta revised its third-quarter 2016 GDP forecast 10 basis points upward on Wednesday, to 2.0% from 1.9% previously, after raising the forecast of third-quarter real federal government expenditures growth from -0.1% to 0.3%. Taking the latest Fed forecasts into account, the pace of U.S. GDP annual growth could be about 1.4% year-on-year, the slowest compounded annual growth rate (CAGR) since the end of the deep recession in 2009. The current blue chip consensus U.S. GDP 2016 forecast is 1.8%. 

For the week, the U.S. dollar index climbed another 0.70%, to close at 98.686 on Friday. The yield of 10-year U.S. Treasury Notes dropped 3.82% for the week to close at 1.736%, while the yield spread between the 10-year and 2-year U.S. Treasury Notes narrowed to 0.90 percentage points. China continued selling U.S. Treasuries to prop up the yuan, sending its holdings to the lowest level since November 2012, according to Bloomberg. The 10-year JGB yield declined 5.36% for the week to negative 0.059 at the close on Friday, while the 10-year German bund yield tumbled over 90%, to close at 0.004%.

The WTI crude price was up $0.10 for the week, to close at $50.85 per barrel on Friday, while the Brent crude spot price inched $0.08 lower to close at $52.00 per barrel, despite that Saudi Arabia’s oil minister Khalid al-Falih said, at the Oil & Money conference in London on Wednesday, non-OPEC producers, possible Russia and Azerbaijan, are ready to join an output cut.

The EIA weekly U.S. oil inventory report on Wednesday showed that domestic crude supplies dropped by 5.2 million barrels to 468.7 million barrels, excluding the Strategic Petroleum Reserve, in the week ending October 14, compared to S&P Global Platts analysts’ expectations for a rise of 2.5 million barrels. The American Petroleum Institute (API) inventory data on Tuesday showed a U.S. crude inventory decline of 3.8 million barrels. 

Separately, the EIA said the weekly U.S. crude oil production increased by 14,000 barrels per day (bpd) for the week ending October 14, to 8.464 million bpd. Weekly U.S. crude oil output has fallen about 11.93% from the peak level of 9.61 million bpd during the week ending June 5, 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count rose by 11 to 443, compared to 316, when the rig count hit the low on June 6, 2016. 

The best performing S&P 500 sectors for the week were Materials and Financials, up 1.58% and 1.19%, respectively. The worst performing sectors for the week were Telecommunication services and Consumer staples down 3.80% and 0.44%, respectively.

S&P 500 Summary: +4.76% YTD as of 10/21/16
Barclay Hedge Fund Index: +4.28% YTD 

Outperforming Sectors: Energy +15.25% YTD, Information technology +11.15% YTD, Utilities +10.84% YTD, Materials +7.92% YTD, Industrials +6.27% YTD, and Telecommunication services +5.96% YTD.

Underperforming Sectors: Consumer staples +3.18% YTD, Consumer discretionary +1.80% YTD, Financials +1.37% YTD, Healthcare –3.33% YTD, and Real Estate –5.37% YTD.

S&P 500 ANALYSIS