Recap: Week Ending January 29, 2016

January 31, 2016

Equities across the globe closed the week on a higher note as indexes found a strong bid later in the week. The Dow Jones Industrial Average led the path higher in the United States closing the week up by 2.32%. It must be noted that the close on Friday is also the weekly high. Such an event shows solid strength and is a very bullish sign. The last time this occurred was roughly near the bottom of the market in September of 2016, and the Dow rallied almost 10% until slowing. On the flip side, the NASDAQ 100 Index was the worst performing US index closing the week up 0.46% as the tech-heavy index was slowed down by poor Apple quarterly earnings. Like the Dow, the NASDAQ did also close on its weekly highs. Last week markets had a lot of information to digest including a key interest rate decision at home as well as abroad. It was announced on Wednesday that United States Federal Reserve will not be changing its interest rate of 0.5%. This statement comes as no surprise to many as the market was not anticipating an interest rate shock. More importantly, traders and investors were interested in the statement from the Fed regarding how it is reacting to global market volatility. Regarding this notion, the Fed stated, they are “closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook.” More at home, the Fed removed a statement regarding reasonable confidence that they believe inflation will rise to their targets in the medium term. Such news appears to be rather on the dovish note; however, equities sold off on the day with the Dow Jones closing down 224 points. Markets were also weighted down on Wednesday by earnings after the close on Tuesday from Apple. On Tuesday Apple announced a revenue of $75.9B with profits coming in at $18.4B. As a result, EPS came in beating expectations at $3.28. Expectations leading up to the announcement saw revenues at $76.6B, profits at $18.2B and EPS coming in at $3.23. Despite the beat financially, iPhone sales of 74.8M came in below expectations of 75M. Sales were down additionally in their iPad and Mac divisions with expectations of 16.12M and 5.31M respectively. Results came in with sales of 17.3M iPads and 5.8M Macs. More importantly, sales are down on a year over year basis with Mac sales slumping 4% and iPads falling an additional 25%. Looking to the future, the news does not appear much better. Apple is expecting to announce a drop in revenues to the $50-$53B range as it states a decline in iPhone sales will harm this business further. The poor guidance sent Apple lower by $4.08 or 4.02% to close the week at $97.34. The push lower in Apple dragged down many major indexes as it a large constituent of the Dow Jones, S&P as well as NASDAQ indexes.

The Canadian equity space continues to show extreme strength pushing higher for the second straight week. Last week the TSX, or Toronto Stock Exchange Composite Index, settled the week higher by 3.49% to close on its highs for the week. The rally in the TSX comes as the price of commodities continues to show a fairly strong bid. Like the TSX, the price of NYMEX crude rallied for the second straight week settling up $1.49 or 4.62% at $33.74. The move higher comes as oil appears to be forming a bottom which it established two weeks ago. Like crude, the price of gold also moved higher last week providing more legs for the rally in the TSX. Last week gold settled Friday at $1,118.40 marking a weekly gain of $20.20 or 1.84%. The move higher in the commodity complex is without a doubt contributing to the push higher in the prices of equities. One must keep a close eye on the prices of such commodities as they are expected to continue to dictate the direction of equities into the future.

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