S&P 500

S&P 500 Index Surges to All-Time High as Trump Vows “Phenomenal” Tax Announcement

Witawat (Ed) Wijaranakula, Ph.D.
Fri Feb 10, 2017

The S&P 500 gained 0.81% for the week, to close on Friday at 2,316.10, an all-time closing high, after President Donald Trump said, during a meeting with airline executives at the White House on Thursday, that he plans to announce a "phenomenal" tax plan but offered no specifics other than citing the need to lower the tax burden on businesses. 

Traders were increasing bearish on the market, as they have trimmed their net speculative long positions in consolidated S&P 500 futures contracts by 5,993 compared to the previous week, as of February 7, according to data from the U.S. Commodity Futures Trading Commission, or CFTC. The higher highs chart pattern is still intact and the index could be heading to retest the top of the range, which is 2,379.50.

The best performing S&P 500 sectors for the week were Industrials ($SPI) and Information technology ($SPT), up 1.59% and 1.23%, respectively, while the worst performing sectors for the week were Energy ($SPEN) and Telecommunication services ($SPTS), down 0.67% and up 0.29%, respectively. 

3M Co. (NYSE:MMM) and Boeing Co. (NYSE:BA), two of the top holdings in Industrials, were up 2.26% and 2.36%, respectively. 3M Co. released earnings results on Tuesday that topped analysts’ consensus estimates, while Boeing said Singapore Airlines has committed to ordering 20 777-9s and 19 787-10 Dreamliner aircraft valued at $13.8 billion at list prices. Mega cap tech stocks, including Apple Inc (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB), and Amazon.com Inc, were up 2.36%, 2.45% and 2.13%, respectively.

The U.S. Dollar index (DXY), a measure of the U.S. dollar value relative to a basket of foreign currencies, closed at 100.79, up 0.95% for the week, after 4 ½ weeks of being sold-off since the beginning of the year. Currency traders might have covered their short positions ahead of Fed speeches and the upcoming congressional testimony. Philadelphia Federal Reserve Bank President Patrick Harker, a FOMC voting member, told the audience at a conference in San Diego on Monday that he would be open to raising interest rates again at the U.S. central bank's March meeting if growth in jobs and wages continues, according to Reuters. 

Federal Reserve Chair Janet Yellen is scheduled to appear before the Senate Banking Committee on February 14 and will testify about the U.S. economy and monetary policy before the House Financial Services Committee on February 15. Deutsche Bank’s chief international economist, Torsten Slok, said the market doesn’t believe we will get three rate hikes this year, according to MarketWatch.

The spot gold price surged another 1.24% for the week, to close at $1,235.90 per ounce on Friday, while the Japanese yen was down 0.52% against the U.S. dollar at 113.28 yen per U.S. dollar. Traders might have covered their yen long positions ahead of the meeting between Japanese Prime Minister Shinzo Abe and President Trump in Washington D.C. on Friday. The yield of 10-year U.S. Treasury Notes was down another 2.35% this week, to close on Friday at 2.467%, while the yield spread between the 10-year and 2-year U.S. Treasury Notes narrowed to 1.21 percentage points.

The WTI crude spot price closed practically unchanged for the week, at $53.86 per barrel on Friday, while the Brent crude spot price lost 0.16% for the week to close at $56.65 per barrel, despite bearish EIA weekly reports on Wednesday. Crude oil bulls weighed in with arguments about EIA bearish data, as they were trying to defend crude prices. The bulls got huge support from the Paris-based International Energy Agency, or IEA, on Thursday, after reporting that it had estimated OPEC’s crude oil output at 32.1 million barrels per day, or bpd, in January with record compliance, and some producers, especially Saudi Arabia, cut more than pledged.

Short positions in WTI crude oil futures contracts held by producers or merchants totaled more than 657,566 contracts as of February 7, 2017, a record high, according to CFTC data. The open interest also stands at a record high of 2,191,158 contracts, equivalent to about 2.19 billion barrels of WTI crude oil. Crude oil producers could take short hedge positions to lock in a future selling price to protect against a falling crude oil price. Some banks also require producers to hedge against future price risks as a condition for lending. 

The EIA weekly U.S. oil inventory report on Wednesday showed that domestic crude supplies increased by another 13.8 million barrels to 508.6 million barrels, excluding the Strategic Petroleum Reserve, in the week ending February 3, compared to the S&P Global Platts forecast for a stockpile increase of 2.5 million barrels. The American Petroleum Institute, or API, inventory data on Tuesday showed a U.S. crude inventory build of 14.2 million barrels. 

Separately, the EIA said the weekly U.S. crude oil production increased 63,000 bpd, for the week ending February 3, to 8.978 million bpd. U.S. crude oil output increased 8,000 bpd to an average 8.95 million bpd in February, compared to a January average of 8.942 million bpd. Output has fallen about 6.77% from the peak level of 9.60 million bpd in June 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count jumped another 8 to 591, compared to 316, when the rig count hit the low on June 6, 2016. 

S&P 500 Summary: +3.45% YTD as of 02/10/17 
Barclay Hedge Fund Index: +1.35% YTD 

Outperforming Sectors: Information technology +7.17 YTD, Consumer discretionary +5.27% YTD, Materials +4.87% YTD, and Healthcare +4.09% YTD.

Underperforming Sectors: Consumer staples +3.36% YTD, Industrials +3.36% YTD, Financials +1.97% YTD, Real Estate +1.52% YTD, Utilities +1.26% YTD, Energy –3.62% YTD, and Telecommunication services –4.74% YTD.


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