Dol­lar rises as in­vestors place Fed bets

Kuwait Times - - BUSINESS -

NEW YORK: Wall Street stocks rose on Fri­day along with the US dol­lar and Trea­sury yields as in­vestors bet that Fed­eral Re­serve pol­icy tight­en­ing would stay on track af­ter data showed stronger-thanex­pected US jobs growth with wage in­creases that lagged fore­casts. Oil prices tum­bled af­ter a re­port showed US crude pro­duc­tion rose last week just as OPEC ex­ports hit a 2017 high, cast­ing doubt on ef­forts to curb per­sis­tent over­sup­ply. US Trea­sury debt yields and the dol­lar rose as in­vestors an­a­lyzed how the mix of strong jobs and weak wage growth would in­flu­ence the Fed's plans for an in­ter­est rate hike or bal­ance-sheet re­duc­tion.

"There is cer­tainly no rea­son given the data we saw this morn­ing to knock the Fed off the track of prob­a­bly one more raise this year and maybe an an­nounce­ment in Septem­ber about re­duc­ing the bond pur­chase," said Sean Lynch, co-head of global eq­uity strat­egy at Wells Fargo In­vest­ment In­sti­tute in Omaha, Ne­braska. Wall Street's S&P 500 stock in­dex closed higher af­ter a sell­off on Thurs­day as in­vestors, while re­as­sured by the strong jobs num­ber, bet weak wage growth would limit the ex­tent of Fed hawk­ish­ness. "The fears of rates ris­ing too quickly have dis­si­pated and mar­ket par­tic­i­pants are look­ing for bar­gains," said An­drew Frankel, co-pres­i­dent of Stu­art Frankel & Co in New York.

"Maybe there was just enough bad news in a great jobs num­ber to keep the Fed off the gas pedal," he said. The Dow Jones In­dus­trial Av­er­age rose 94.3 points, or 0.44 per­cent, to 21,414.34, the S&P 500 gained 15.43 points, or 0.64 per­cent, to 2,425.18 and the Nas­daq Com­pos­ite added 63.62 points, or 1.04 per­cent, to 6,153.08. The US dol­lar was up 0.2 per­cent against a bas­ket of cur­ren­cies. The green­back hit two-month highs against the yen and was on pace to post its big­gest weekly per­cent­age gain against Ja­pan's currency since late April af­ter the jobs data. "On bal­ance, the la­bor mar­ket con­tin­ues to be solid and de­spite the softer in­fla­tion data as of late, the solid em­ploy­ment data should keep the Fed on course for pol­icy nor­mal­iza­tion," said Char­lie Ri­p­ley, in­vest­ment strate­gist at Al­lianz In­vest­ment Man­age­ment in Min­neapo­lis.

In Trea­suries, longer dated yields briefly hit multi-week highs. Bench­mark 10-year notes were last down 5/32 in price to yield 2.3874 per­cent, from 2.369 per­cent late on Thurs­day. The 30-year bond fell 16/32 in price to yield 2.9289 per­cent, from 2.904 per­cent late on Thurs­day. Bets that some of the world's ma­jor cen­tral banks are mov­ing closer to un­wind­ing ul­tra-loose mon­e­tary poli­cies af­fected stocks this week as Euro­pean Cen­tral Bank min­utes showed pol­i­cy­mak­ers are open to tight­en­ing.

In Europe, Ger­man gov­ern­ment bond yields had risen to 18-month highs, weigh­ing on stocks there. The pan-Euro­pean FTS Eurofirst 300 in­dex lost 0.12 per­cent but MSCI's gauge of stocks across the globe gained 0.19 per­cent. US crude fell 2.61 per­cent to $44.33 per bar­rel and Brent was last at $46.82, down 2.68 per­cent.

The week ahead

Tech­nol­ogy shares sur­ren­dered their lead­er­ship in the US stock mar­ket over the past month, but the fast-grow­ing group may soon re­sume its out­per­for­mance and ma­neu­ver back into pole po­si­tion. Up­com­ing earn­ings re­ports for the tech­nol­ogy sec­tor , whose prof­its are ex­pected to out­pace the over­all S&P 500 for the 11th con­sec­u­tive quar­ter, could lure back in­vestors who have been con­cerned about ex­pen­sive val­u­a­tions and that too many peo­ple may have piled into the big names.

The sec­tor has slumped 4 per­cent since the first week of June, while fi­nan­cials have climbed more than 5 per­cent and health­care has gained 3 per­cent. This has prompted spec­u­la­tion that in­vestors may have been cash­ing out their tech prof­its to move into those groups. "Tech­nol­ogy has taken a rest, but it's go­ing to heat up again, and I see tech re­turn­ing to fa­vor the second half of the year," said port­fo­lio man­ager J. Bryant Evans of Cozad As­set Man­age­ment in Cham­paign, Illi­nois.

For the first five months of 2017, tech was the talk of the stock mar­ket, far out­per­form­ing the other 10 ma­jor S&P 500 sec­tors and spark­ing the Nas­daq Com­pos­ite to its strong­est first half since 2009. "I think of (tech's re­cent swoon) as profit-tak­ing rather than driven by change in the fun­da­men­tal fac­tors," said John Praveen, man­ag­ing di­rec­tor of Pru­den­tial In­ter­na­tional In­vest­ments Ad­vis­ers in Ne­wark, New Jer­sey. "The fun­da­men­tals are still pos­i­tive for the sec­tor."

An­a­lysts es­ti­mate tech's second-quar­ter earn­ings rose 11.2 per­cent, with semi­con­duc­tor com­pa­nies ac­count­ing for much of the gain, ac­cord­ing to Thom­son Reuters I/B/E/S. The in­crease tops the es­ti­mated 7.9 per­cent rise for the over­all S&P 500 and is well above ev­ery sec­tor ex­cept for en­ergy, whose per­for­mance will be skewed be­cause of neg­a­tive year-ear­lier re­sults. "The tech sec­tor has the high­est growth ex­pec­ta­tions and only moder­ate un­cer­tainty," Mor­gan Stan­ley eq­uity strate­gists said in a re­search note.

Given tech's out­sized po­si­tion - 22 per­cent of the mar­ket value of the S&P 500 - the sec­tor's growth is crit­i­cal to over­all US cor­po­rate profit gains. For the second quar­ter, tech profit growth alone is ex­pected to ac­count for nearly 28 per­cent of the S&P 500's over­all in­crease in earn­ings, or nearly half if en­ergy were ex­cluded. "In an economy that still seems to have some grow­ing pains, con­sis­tent growth is worth pay­ing up for," said Peter Tuz, pres­i­dent of Chase In­vest­ment Coun­sel in Char­lottesville, Vir­ginia.

Tech's second-quar­ter rev­enue growth is pro­jected at 7.2 per­cent, faster than 4.6 per­cent for S&P 500 com­pa­nies over­all, ac­cord­ing to Thom­son Reuters I/B/E/S. There is "growth on the top line, which is more im­por­tant at this point in the cy­cle, than in the bot­tom line only," said Kim For­rest, se­nior eq­uity re­search an­a­lyst at Fort Pitt Cap­i­tal Group in Pitts­burgh. This earn­ings sea­son, she will fo­cus on com­pa­nies' com­ments about sales ac­tiv­ity.

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