A bit of consolidation early in the week gave way to a continued advance to close out Friday. This advance is shaping up to be more than a handful of large-cap technology stocks like we saw for a good part of 2017. Sectors that have been dead money or lackluster the past couple of years are starting to come alive. This means that it will be easier to diversify holdings without “giving-up” on growth as most growth has been concentrated in technology, social media, IPOs or “gotta-own” stocks like Apple, Facebook, Amazon, etc..
So who is leading the pack for 2018? See below for a few of the many sector ETFs that I follow as of Friday’s (1/12) closing prices:
Oil Services ($OIH) +11.75% YTD
Steel ($SLX) +11.45% YTD
Solar ($TAN) +9.43% YTD
Oil ($USO) +7.33% YTD
Transportation ($IYT) +7.15% YTD
Natural Gas ($FCG) +6.94% YTD
Consumer Discretionary ($XLY) +6.36% YTD
Retail ($XRT) +6.02% YTD
NASDAQ ($QQQ) +5.66% YTD
Healthcare ($XLV) +5.00% YTD
S&P 500 ($SPY) +4.15%
Russell 2000 ($IWM) +3.76%
Any of these sectors ring a bell as leaders for the past few years? Well, keep an eye on these sectors as the economy may start trending towards higher growth and capital investment by corporate America which will drive money into these sectors. Earnings announcements began on Friday with JP Morgan (good) so keep your ear to the ground for what CEOs tell the market about their plans for the new year. Increased capital investment – factory building, research & development, purchasing land & machinery – could all be drivers of stock prices for 2018.
Twenty-eight companies listed on the S&P 500 are slated to report results next week. Banks will continue to post earnings with reports due from Goldman Sachs, Bank of America, Citi and Morgan Stanley. Other companies on the roster include CSX (railroads), IBM, American Express and Schlumberger.
Chart(s) of the Week!
States with the highest inflows of Americans (from other states).
Calling Mr. Roboto!
Economic & Central Banking Snippets
- The Italian unemployment rate has fallen for the fourth straight month to its lowest level since 2012 — welcome news for markets with national elections due in the coming months. With elections set for March 4, Italian data are being watched even more closely than usual. The figures showed the unemployment rate fell by a tenth of a percentage point to 11% for November. The rate for young people fell to 32.7% — a 1.3% drop. It has been young voters that have tended to favor more extreme political movements.
- Retail sales in the U.S. were solid in December, with strength in core sales indicating solid consumption growth through the end of the year. We raise our 4Q GDP tracking estimate to 3.6% (from 3.2% previously). (MS)
- Core U.S. CPI rose 0.3%M in December, raising the year/year rate to 1.8% from 1.7%. With food up 0.2% and energy down 1.2%, headline CPI rose 0.15%, lowering the year/year rate to 2.1% from 2.2%. (MS)
- One of the reasons I started Kisco Capital: Investors who seek advice from discount brokerage firms might assume the counsel they get is impartial, given how these firms have rejected the old Wall Street model of working on commissions. In fact, advisers at some of the biggest discount brokerage firms make more money if they steer clients toward more-expensive products, according to disclosures from the firms and people who used to work at them. That means customers could end up with investment products and services that are costlier than they need. (FT/WSJ)
- JPMorgan Chase got the big banks’ fourth-quarter earnings season off to a brisk start on Friday morning, beating analysts’ expectations for profit despite a jump in loss provisions, a particularly sluggish period for trading and a loss relating to hobbled South African retailer Steinhoff.
- As smartphones have become waterproof and capable of ever higher quality video, action camera maker GoPro has been suffering as a one-trick pony. On Monday, the company said it had hired bankers to explore a sale, soon after revealing a big revenue miss that had prompted its shares to fall by a third.
- A state legislator in Vermont has proposed a bill to create a new regulatory framework for the use of blockchain technology. Sen. Alison Clarkson introduced the bill, and the measure has since been forwarded to the Committee on Economic Development, Housing and General Affairs.
- Kodak, which made its name with photography, is hoping to capture the magic of two buzz-worthy technologies: cryptocurrencies and blockchain. Shares of Eastman Kodak surged 40% on Tuesday after it announced that it had partnered with Wenn Digital to launch a blockchain-based image-rights management platform, KODAKOne, and KODAKCoin – a “photo-centric cryptocurrency to empower photographers and agencies to take greater control in image rights management.”
- Popular messaging app Telegram is set to join the blockchain craze by launching its own cryptocurrency later this year in an “initial coin offering” (ICO) that could raise as much as $500 million. The WhatsApp competitor, which says it expects to surpass 200m users this year, wants to create a blockchain platform allowing payments through its app, according to a white paper seen by the FT. The project, dubbed the Telegram Open Network, would be the first Western-based messenger to take after China’s wildly successful WeChat Pay, but with a key difference: the cryptocurrency would be free of government control and not be hosted on centralized servers. (FT)
- After shutting down local bitcoin exchanges and banning ICOs, China is moving to eradicate the country’s bitcoin mining industry over concerns about excessive electricity consumption and financial risk. (FT)
- The SEC has asked ProShares, as well as Van Eck Associates and First Trust Advisors, to shelve applications for bitcoin-related ETFs, marking a similar rejection issued to the Winklevoss twins last March.
- Wal-Mart said it would raise its minimum wage to $11 per hour for all its U.S. employees and hand out one-time bonuses as competition for low-wage workers intensifies and new tax legislation will add billions to its profits. Wal-Mart is the largest private employer in the world, with 2.2 million employees, including more than 1.5 million in the U.S.
- Web-storage company Dropbox Inc. has filed confidentially to go public, in what stands to be one of the largest tech IPOs in the past few years. The offering, expected in the coming months, would mark a rare move among a class of richly valued tech startups that have put off IPOs with ample amounts of capital still flowing in from giant investment firms such as SoftBank Group Corp.
- Bitcoin slid as much as 14% on Thursday after South Korea’s justice minister said the government was working on a bill to ban cryptocurrency trading amid a clampdown on virtual currencies in one of the world’s most exuberant markets. The price of the cryptocurrency tumbled below $13,000 after justice minister Park Sang-ki said there are “great concerns regarding virtual currencies” and that his ministry was preparing a bill to ban trading on exchanges.
That is all for now until next week’s Market Update. If someone forwarded you a copy of this report, you can sign-up directly at www.kiscocap.com.
Paul J. McCarthy, III
President – Kisco Capital