Telemus Weekly Market Review

January 29 – February 2, 2018

Stocks tumbled last week, denting their impressive 2018 gains and reminding investors stocks can go down as well as up. For the week the Dow Jones Industrial Average dropped 4.12%, the S&P 500 slid 3.85%, and the Nasdaq lost 3.53%.

While investors had a lot of news to digest, including President Trump’s first State of the Union address, a tech-heavy batch of fourth quarter earnings, and the Employment Situation report for January, the selling was more so a natural response to a market that’s moved too far too fast although a spike in Treasury yields did help strengthen a case for the bears.

Technology names dominated the week’s batch of earnings, with Apple, Microsoft, Facebook, and Alphabet reporting their fourth quarter results, which were mostly better-than-expected. However, the companies’ shares settled the week mostly lower; MSFT, GOOGL, and AAPL shares lost 2.4%, 5.8%, and 6.4% for the week, respectively, while FB shares advanced 0.2%, touching a new all-time high.

Apple reported above-consensus earnings on in-line revenues, but iPhone sales for the holiday season came in weaker than expected, and the company lowered its sales forecast for the first three months of 2018. Meanwhile, Facebook beat earnings and revenue estimates and reassured investors that its ad business would remain highly profitable despite changes to its news feed, which have prompted users to spend less time on the site about 50 million hours less per day.

As for the others, Microsoft reported above-consensus earnings and revenues on the back of its rapidly-growing cloud computing business, while Alphabet, the parent company of Google, missed earnings estimates despite beating revenue forecasts largely due to rising costs.

Outside the technology space, Amazon and Boeing also reported their quarterly results this week. Amazon ended with a weekly gain of 2.0% after blowing past earnings estimates thanks in part to changes in the U.S. tax code while Boeing jumped 1.7% after also soundly beating earnings estimates, beating revenue estimates, and issuing much better-than-expected guidance for fiscal year 2018.

In other corporate news, the health care sector struggled last week, losing 5.1%, after Amazon, Berkshire Hathaway, and JPMorgan Chase announced on Tuesday that they will be partnering to form a company focused on reducing health care costs for hundreds of thousands of their U.S. employees.

In Washington, President Trump delivered his first State of the Union address on Tuesday evening. The president stayed on script, calling for a $1.5 trillion infrastructure plan and a compromise on immigration that would allow a path to citizenship for “Dreamers” in exchange for his promised barrier along the Mexico border and added border security. Mr. Trump also noted that lowering prescription drug prices is a top priority of his administration and took a firm, but relatively calm, stance against North Korea.

Meanwhile, Fed Chair Janet Yellen wrapped up her time at the Federal Reserve on a rather uneventful note as the Federal Open Market Committee unanimously voted on Wednesday to leave the fed funds target range unchanged at 1.25%-1.50%, as expected. In its statement, the central bank said near-term risks to the economic outlook appear roughly balanced, but added that officials are keeping an eye on inflation, which has been slow to pick up despite a tighter labor market.

The policy directive did little to change the market’s rate-hike expectations; the CME FedWatch Tool still points to the March FOMC meeting as the most likely time for the next rate-hike announcement, with an implied probability of 77.5% (up from 74.7% last week), and calls for an additional two hikes before the end of the year.

On the data front, investors received the Employment Situation report for January on Friday: Nonfarm payrolls came in better-than-expected, average hourly earnings hit estimates, and the unemployment rate stayed at 4.1% as expected.

The yield on the benchmark 10-yr Treasury note spiked 19 basis points to 2.85% last week, its best level since January 2014, while the 2-yr yield climbed two basis points to 2.14%, its best level in nearly a decade dating back to the financial crisis. The recent rise in Treasury yields, the 10-yr yield has climbed 50 basis points in seven weeks, is seen by some as a positive sign for economic growth, but it could also be a headwind for equities, which are trading at very high valuations.

Crude oil was closed at $65.06 a drop of roughly 1.75% from the prior weeks close.

February 5 – February 9 Economic Calendar

  • Monday
  • PMI Services Index
    9:45 AM ET
  • ISM Non-Mfg Index
    10:00 AM ET
  • Redbook
    8:55 AM ET
  • JOLTS
    10:00 AM ET
  • Consumer Credit
    3:00 PM ET
  • John Williams Speaks
    5:20 PM ET
  • Money Supply
    4:30 PM ET
  • Esther George Speaks
    9:00 PM ET
  • Tuesday
  • International Trade
    8:30 AM ET

  • James Bullard Speaks
    8:50 AM ET
  • Redbook
    8:55 AM ET
  • JOLTS
    10:00 AM ET
  • Consumer Credit
    3:00 PM ET
  • John Williams Speaks
    5:20 PM ET
  • Money Supply
    4:30 PM ET
  • Esther George Speaks
    9:00 PM ET
  • Wednesday
  • MBA Mortgage Applications
    7:00 AM ET
  • William Dudley Speaks
    8:30 AM ET
  • EIA Petroleum Status Report
    10:30 AM ET
  • Charles Evans Speaks
    11:15 AM ET
  • Consumer Credit
    3:00 PM ET
  • John Williams Speaks
    5:20 PM ET
  • Money Supply
    4:30 PM ET
  • Esther George Speaks
    9:00 PM ET
  • Thursday
  • Robert Kaplan Speaks
    4:50 AM ET

  • Jobless Claims
    8:30 AM ET
  • Neel Kashkari Speaks
    9:00 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Esther George Speaks
    9:00 PM ET
  • Friday
  • Wholesale Trade
    10:00 AM ET

  • Baker-Hughes Rig Count
    1:00 PM ET
  • Redbook
    8:55 AM ET
  • JOLTS
    10:00 AM ET
  • Consumer Credit
    3:00 PM ET
  • John Williams Speaks
    5:20 PM ET
  • Money Supply
    4:30 PM ET
  • Esther George Speaks
    9:00 PM ET

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only.  It is not intended as investment advice and does not address or account for individual investor circumstances.  Investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance.  The statements contained herein are based solely upon the opinions of Telemus Capital, LLC.  All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.