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FactSet StreetAccount Summary - US Weekly Recap: Dow +1.09%, S&P +2.02%, Nasdaq +3.15%, Russell 2000 +1.47%

Feb 13, 2015


  • US equities finished higher for a second straight week. The S&P 500 ended at a record high. Some of the credit went to heightened expectations for a deal between Greece and Europe. The geopolitical backdrop was also cited as supportive with the ceasefire agreement for eastern Ukraine. However, neither of these dynamics had ever really presented a headwind for stocks and there continued to be a number of issues in both cases that still needed to be sorted out. This left some of the focus on thoughts that the market has simply been working off the negative sentiment that accrued over the better part of January despite a relatively unchanged macro narrative. In terms of the other notable developments, this week saw a further bounce in oil, though broader market spillover seemed more muted. While the stronger January employment report out last Friday kept a mid-2015 liftoff in focus, there was also discussion about how a lower natural rate of unemployment could slow the policy normalization process. The market largely ignored disappointing retail sales and consumer confidence data this week, while there was some positive sentiment surrounding the better growth data out of Germany. Aggregate takeaways from another busy week on the earnings calendar were limited. Tech was the big gainer this week, while utilities was the only sector to finish lower for a second straight week.

Greece gets some of the credit:

  • Developments surrounding Greece seemed to be one of the go-to excuses for the better global risk sentiment this week. While Greece and Europe failed to reach a compromise at Wednesday’s Eurogroup meeting on a joint statement describing the path forward, markets were more focused on the hints of potential flexibility from both sides. There were reports that Germany will not insist that all elements of Greece’s aid program continue and may be willing to compromise on budget surplus and privatization targets. Dow Jones cited comments from a senior European official who said that the Eurozone could simply agree to let the current bailout program expire at the end of the month and replace it with a new one. Greek Prime Minister Tsipras also agreed to allow technical negotiations between Athens and the troika to find common ground between the current program and Syriza’s plans. A Greek government spokesman said on Friday that Athens will do whatever it can to try to secure a deal by the next Eurogroup meeting on Monday. However, there were still concerns that despite some progress, the two sides remain far apart and negotiations are likely to be protracted and difficult. Eurogroup President Dijsselbloem said on Friday he was “very pessimistic” about a deal on Monday, noting Greek voters’ expectations of their new government were too high.

Ukraine ceasefire also cited as supportive:

  • Thursday’s ceasefire agreement for eastern Ukraine was also highlighted as supportive for risk-on trades. However, there were some similarities to the Greek situation in that contagion from the recent re-escalation of the crisis was never a meaningful concern (particularly for US stocks). In addition, there was a good deal of skepticism about the ability of the ceasefire to hold. Such skepticism was based on a number of factors, including how quickly the last deal deteriorated. There were also worries about the fact that Ukraine will not regain control of its border until it offers more autonomy for rebel-controlled areas and enacts constitutional reform by the end of 2015. This dynamic was in focus as even as the ceasefire talks were taking place, a Ukrainian military spokesman said tanks, missile systems and armored vehicles crossed into Ukraine from Russia. The biggest issue revolved around the lack of trust in Russian President Putin amid expectations he will continue with his plan to destabilize Ukraine and keep it from forming closer ties with the West. In terms of the economic implications, the ceasefire deal is not expected to result in any near-term reprieve for sanctions. Secretary of State Kerry said the US would not consider rolling back sanctions until there is a full ceasefire, withdrawal of all foreign troops and equipment from Ukraine and the restoration of Ukrainian control of the international border.

Sentiment improves:

  • With credibility issues surrounding several of the more widely cited tailwinds over the last couple of weeks (oil bounce, better earnings metrics, Greece, Ukraine, foreign central bank easing), there were also thoughts that US equities have simply been working off some of the negative sentiment that built up in January despite a largely unchanged macro backdrop. According to the latest Investors Intelligence survey, the bullish camp stood at 52.5% for the week of 10-Feb, up from 49% in the prior week. In addition, the bears slipped to 15.2% from 16.3% over the past two weeks, while just before that, they were at a six-month high. The spread between the bulls and bears expanded to 37.3% from 32.7%, the highest since the 41.5% seen at the end of December. In addition, bullish sentiment in the weekly survey from the American Association of Individual Investors (AAII) rose to 40% from ~35.5% in the prior week. Bearish sentiment fell to 20.3% from 32.4%, the lowest reading since the first week of 2015 and ten points below the long-term average. Flow data for risk assets also fit with the better sentiment. According to BofA Merrill Lynch, high yield inflows totaled ~$2.9B last week, bringing the three-week cumulative total to $8.75B, the largest on record. It also pointed out that leveraged loan funds saw the smallest net outflow since last July.

Fed focused on lower natural unemployment rate:

  • Monetary policy remained in the headlines this week. Sweden’s Riksbank was the latest central bank to surprise with an easing move, pushing rates into negative territory. It also announced QE. There were some more hawkish takeaways surrounding the BoJ, with Bloomberg the latest to highlight its pushback against further easing expectations on concerns about yen weakness. In China, the mainland press offered some mix messages regarding the scope for additional RRR and benchmark rate cuts. In terms of the Fed, the January employment data out last Friday seemed to support the mid-2015 liftoff dynamic following a recent pickup in speculation that it may not be able to tighten this year. In addition, San Francisco Fed President Williams, an FOMC voter considered to be a centrist, told the FT that the time to start raising rates is getting "closer and closer". However, there was also support this week for an even slower than expected tightening cycle. Both the WSJ and Reuters had reports discussing how the Fed is now debating whether the natural rate of unemployment is lower than previously thought. Fed Governor Powell, who talked about the lingering slack in the economy, suggested the natural rate of unemployment could be 5% or lower.

Oil bounce continues:

  • The oil bounce continued this week. After rallying 9.1% last week, Brent crude gained more than 6% to settle at $61.52 a barrel. WTI ended the week 2.1% higher at $52.78 a barrel after jumping 7.2% in the prior week. While analysts remained skeptical about the read-throughs for production, rig count data and capex cuts remained the widely cited tailwinds. On Friday, Baker Hughes reported that the US oil rig count fell by 84 this week to 1,056, down 34% from the October 2014 peak and the lowest level since August 2011. There was also a lot of focus on guidance from APA (5.5%), which said it would cut 2015 capex by 65% and reduce the number of US rigs by 70%. PXD +0.8% announced a 45% reduction in capex and a 50% cut in rigs. In addition, the CEO of RDS.A +0.1% said that economic recovery traction should lead to higher demand. He added that supply will not keep pace with growth and suggested that prices could see a rapid recovery if projects are postponed or canceled. A Reuters article also pointed out that OPEC’s strategy seems to be working as the three main monthly reports out this week on average raised their demand outlook for OPEC crude in 2015. However, this week also saw another batch of cautious sell-side commentary on concerns that the market is still oversupplied and inventories are likely to build further. Citi even noted that WTI could briefly trade as low as $20 a barrel.

Tech leads market higher:

  • Tech was the best performing sector this week. Much of the focus was on the momentum in AAPL +6.9%. There was no one specific factor for the strength, though comments from CEO Tim Cook at the Goldman Sachs Tech & Internet conference were well received, with some focus on capital returns. In addition, following presentations from a number of hardware companies, Goldman pointed out that continued stability in IT spending seemed to be a common thread, with enterprise demand described as sturdy. Semis rallied with the SOX +5%. FSL +12.9% outperformed on a NY Post report it is considering a sale, while MU +10.2% jumped on the favorable amendment to its relationship with Inotera. CSCO +8% also provided some upside leadership following its January quarter results, with the Street positive on broad based strength across products and geographies, along with accelerating orders. In the Internet space, the OTA names received the bulk of the attention. OWW +26.3% agreed to be acquired by EXPE +14.9% in a $1.6B deal. TRIP +23.7% was another big gainer with the upbeat takeaways from its Q4 results and better 2015 revenue outlook. FEYE +17.2% led the software space higher this week on the back of its Q4 billings beat.

Energy another standout, but utilities weaker:

  • The materials sector was the second-best performer this week. The bulk of the industrial metals outperformed with the global growth/risk trade. Steel names AKS +16% and X +13.7% were some of the standouts. Energy outperformed with the oil bounce and oversold conditions still the go-to excuses. Consumer growth was helped by some better updates out of specialty apparel, including ARO +44.6% and URBN +4.9%, the CHS +6.7% LBO speculation, a continued rally in homebuilders, fairly broad-based strength in media and earnings and corporate actions tailwinds from the lodging sector with WYN +10.4% and HOT +9.6%. The industrials sector failed to keep up, though a number of multi and machinery names outperformed. WSO +5.4% kept the focus on the momentum in the HVAC space. Airlines lagged, though truckers had a good week. There did not seem to be anything specific behind the underperformance of the financials sector. Upside in consumer staples was limited by some disappointing results and guidance out of the food space from the likes of THS (11.9%), DF (11.2%), K (4.6%), CAG (4.4%) and KRFT (3.5%). The utilities sector lost over 3% for a second straight week.

Sector Performance (vs S&P 500):

  • Outperformers: Tech +4.27%, Materials +3.01%, Consumer Disc. +2.63%, Energy +2.62%
  • Underperformers: Utilities (3.32%), Telecom +0.07%, Consumer Spls. +0.96%, Financials +1.20%, Healthcare +1.36%, Industrials +1.58%

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