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Market Insights / Commentary

Bulls shrug off government shutdown

By David Russell

Who cares about a government shutdown? It’s earnings season!

That seems to have been the market’s message last week as major stock indexes continued their advance to new record highs. The most widely followed, S&P 500, climbed 0.9 percent in the holiday-shortened period and has only turned in one negative showing in the last nine weeks.

Traders didn’t have to look hard to explain the good times. Economic reports show the best growth trajectory in a decade, with the fewest Americans out of work in 45 years and China accelerating for the first time since early in this decade. Other data points like consumer sentiment, housing starts and homebuilder confidence missed estimates but remain near the top of long-term ranges.

Earnings reports mostly focused on financials. Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM) were among the winners. However, slow trading weighed on Goldman Sachs (GS) and American Express (AXP) dropped on a tax-accounting anomaly. Managed-care giant UnitedHealth (UNH) also blasted to new highs after last month’s tax reform allowed management to increase its earnings guidance. Speaking of taxes, a Merrill Lynch strategist predicted the lower rates will lift overall earnings by more than 10 percent and technology giant Apple (AAPL) said it would plow $350 billion into the domestic economy.

Semiconductors were the best major industry group in the week, paced by names like Lam Research (LRX), Applied Materials (AMAT) and KLA Tencor (KLAC). Consumer-staples were the top sector as Kroger (KR) kept screaming back from multiyear lows and Monster Beverage (MNST) ran to new highs. A steady influx of capital into emerging-market funds like China (FXI), Taiwan (EWT) and Brazil (EWT) continued, as well.

Energy was the worst major bucket overall as profit takers drove the sector down 1.3 percent on the heels of a two-month rally.

This week keeps the focus on earnings. Netflix (NFLX) reports tonight, followed the next morning by Johnson & Johnson (JNJ), Travelers (TRV) and Verizon (VZ). Texas Instruments (TXN), United Continental (UAL) and Capital One (COF) are slated for Tuesday afternoon.

Wednesday brings existing home sales and crude-oil inventories, along with results from companies like Ford Motor (F), Comcast (CMCSA) and Abbott Laboratories (ABT).

Thursday’s events include a European Central Bank meeting, initial jobless claims and new home sales. Caterpillar (CAT), Starbucks (SBUX), Southwest Airlines (LUV) and Union Pacific (UNP) lead the earnings lineup. Friday’s quiet.

 

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