Weekly Wrap-Up: Dow 20,000 Remains Elusive After Rate Hike

The Dow Jones Industrial Average (DJIA) failed to find the 20,000 mark after the latest interest-rate decision

Dec 16, 2016 at 3:58 PM
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The week started on a strong note, with the Dow Jones Industrial Average (DJIA) continuing its rally through Tuesday, making a run at the 20,000 mark seem almost certain as oil prices surged. But all eyes were on the Federal Reserve by mid-week, as the Federal Open Market Committee (FOMC) met to hammer out the latest policy decisions. As expected, on Wednesday, the Fed announced it would raise interest rates by a quarter point. More surprisingly, however, the committee also revealed it is planning for three interest-rate hikes in 2017 -- news that strengthened the dollar, and sent bank stocks soaring. A stronger U.S. dollar weighed on oil prices, though, leaving the Dow, the S&P 500 Index (SPX) and Nasdaq Composite (COMP) struggling to hold gains through the end of this quadruple witching expiration week.

Bank stocks were in focus both before and after Wednesday's Fed decision. Bank of America Corp (NYSE:BAC) received a boost from the brokerage bunch on Tuesday, as did this sector peer, which saw in influx of bearish options betting. Meanwhile, one speculator initiated a seven-figure bet against the U.S. dollar -- a losing position, so far. And while the Financial Select Sector SPDR ETF (XLF) pulled back just ahead of Wednesday's interest-rate announcement, the exchange-traded fund's calls were in high demand. After the rate hike was made official, big name banks stole the spotlight, but these three under-the-radar peers have been soaring lately, too. On the other hand, financial interests Fidelity National Information Services Inc (NYSE:FIS) and ICICI Bank Ltd (ADR) (NYSE:IBN) may be getting more love than they deserve.

As is hardly atypical, Apple Inc. (NASDAQ:AAPL) was among the tech stocks in focus this week, being named a "Top Pick for 2017" at Needham, and picking up a fresh bullish rating from Piper Jaffray. Apple also released its AirPod headphones for sale early in the week, and launched a new line of iOS emojis. But given AAPL's high esteem on Wall Street, and its ongoing troubles at the $116 level, it might not be such smooth sailing ahead for the tech titan. Elsewhere in the sector, chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) received an upbeat analyst note Monday, and tapped a fresh nine-year high just this morning. Meanwhile, Yahoo! Inc. (NASDAQ:YHOO) yesterday revealed the biggest known data breach in history, with more than one billion users affected -- though this cybersecurity stock tried to profit from YHOO's loss.

It was another notable week for biotech stocks, with three names making big moves Monday on drug news and a C-suite shake-up. Long-troubled Valeant Pharmaceuticals Intl Inc (NYSE:VRX) slid to a fresh seven-year low after the company revealed three top executives were hitting the bricks, and Bill Ackman's Pershing Square cut its stake in the drugmaker. Also weighing on VRX were comments from Morgan Stanley, which said it will "move to sidelines." Mylan NV (NASDAQ:MYL) also came under pressure after the Department of Justice filed its first generic-drug price-fixing probe against the company. Meanwhile, AveXis Inc (NASDAQ:AVXS) found itself the latest target of short seller Citron Research.

After the SPX finished last week on its sixth straight daily win, history suggested Monday could be a down day -- which it was -- and also predicted diminished returns for the month ahead. Adding to the case for near-term underperformance, 30% of optionable SPX stocks notched 52-week highs in the prior two weeks -- a signal last seen two years earlier. On the other hand, Schaeffer's Senior Quantative Analyst Rocky White broke down a historical case that suggested the SPX could continue to rally through year's end, especially after a strong start to December. And shifting attention back to the blue-chip index, the Dow has been eyeing a record set during the tech bubble, with optimism sky-high in the wake of the Trump rally. But with the large-cap index on pace for its sixth consecutive weekly win, a look back at weekly win streaks of the past reiterates that lower returns could be on the way in the months to come.

As the week draws to a close, the Dow is on track to finish the week 0.5% higher, but the SPX and COMP are lagging, off 0.05% and 0.2% respectively for the week. Plus, the small-cap Russell 2000 Index (RUT) will officially snap its weekly winning streak, off 1.7% this week, while volatility has seen a pop of more than 6% over the past five sessions. Looking ahead, Dow component Nike Inc (NYSE:NKE) will join a number of tech firms in reporting quarterly earnings next week. And on the economic front, all eyes will be on Thursday's final third-quarter gross domestic product (GDP) reading.

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