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S&P 500 Index Closed At All-Time High Despite Rate Hike Warnings From Yellen

|Includes: AAPL, BMY, SPDR S&P 500 Trust ETF (SPY)

Ed Wijaranakula, Ph.D., NMS Investment Research

The S&P 500 gained another 1.51% for the week, to close on Friday at 2,351.16, an all-time closing high, led by the Financials sector after Federal Reserve Chair Janet Yellen repeated the same cautionary phrase, "Waiting too long to raise interest rates would be 'unwise' as economic growth continues and inflation rises.", on Tuesday at the Senate Banking Committee hearing and on Wednesday before the House Financial Services Committee, signaling a possible rate hike at the March FOMC meeting.

S&P 500 Techncial Chart

The S&P 500 got strong support from the Healthcare sector after rumors of a Bristol-Myers Squibb (NYSE:BMY) takeover surfaced on Tuesday, which sent the shares surging 4.31% to an intraday high of $54.27. Earlier in the week, Goldman Sachs analyst Simona Jankowski raised her price target for Apple (NASDAQ:AAPL) to $150 from $133 on Monday, citing "increased confidence" that new features in the next iPhone involving a "significant step-up in innovation" will bring about a strong upgrade cycle, according to MarketWatch.

S&P 500 SPEN Technical Chart

The best performing S&P 500 sectors for the week were Financials ($SPF) and Healthcare ($SPHC), up 2.95% and 2.53%, respectively. The worst performing sector for the week was Energy ($SPEN), down 2.08%, as the WTIC crude price seems not to be going above $54 per barrel.

The U.S. Dollar index (DXY), a measure of the U.S. dollar value relative to a basket of foreign currencies, closed at 100.95 on Friday, up just 0.16% for the week, despite that the Fed's Janet Yellen gave strong hints that a March rate hike may be on the table. The spot gold price gained another 0.26% for the week, to close at $1,239.10 per ounce on Friday, while the Japanese yen was up 0.21% against the U.S. dollar.

10-Year U.S. Treasury Note Yield

The yield of 10-year U.S. Treasury Notes was up 0.46% this week, to close on Friday at 2.42%, while the yield spread between the 10-year and 2-year U.S. Treasury Notes remained 1.21 percentage points. The yield of 10-year U.S. Treasury Notes has been stuck under the trendline resistance since December. A rising yield of 10-year U.S. Treasury Notes usually signals that the Federal reserve will raise the interest rate and vice versa.

The WTI crude spot price edged 0.2% lower for the week, closing at $53.75 per barrel on Friday, while the Brent crude spot price lost 1.57% for the week to close at $55.76 per barrel, despite another bearish EIA weekly report on Wednesday. Crude oil prices rebounded on Thursday, following a Reuters report saying that the Organization of the Petroleum Exporting Countries, or OPEC, may extend its production cut agreement with non-OPEC members.

Short positions in WTI crude oil futures contracts held by producers or merchants totaled more than 703,430 contracts as of February 10, 2017, another record high, according to data from the U.S. Commodity Futures Trading Commission, or CFTC. The open interest dropped 7,215 contracts from a record high last week to 2,183,943 contracts, equivalent to about 2.18 billion barrels of WTI crude oil. Crude oil producers could take short hedge positions to lock in a future selling price to protect against a falling crude oil price. Some banks also require producers to hedge against future price risks as a condition for lending.

The EIA weekly U.S. oil inventory report on Wednesday showed that domestic crude supplies increased by another 9.527 million barrels to a record 518.12 million barrels, excluding the Strategic Petroleum Reserve, in the week ending February 10, compared to the S&P Global Platts forecast for a stockpile increase of 3.25 million barrels. The American Petroleum Institute, or API, inventory data on Tuesday showed a U.S. crude inventory build of 9.9 million barrels.

Separately, the EIA said the weekly U.S. crude oil production decreased 1,000 barrels per day, or bpd, for the week ending February 10, to 8.977 million bpd. U.S. crude oil output increased 16,000 bpd to an average of 8.958 million bpd in February, compared to a January average of 8.942 million bpd. Output has fallen about 6.69% from the peak level of 9.60 million bpd in June 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count rose another 6 to 597, compared to 316, when the rig count hit the low on June 6, 2016.

S&P 500 Summary: +5.02% YTD as of 02/17/17
Barclay Hedge Fund Index: +1.43% YTD

Outperforming Sectors: Information technology +9.10 YTD, Healthcare +6.73% YTD, Consumer discretionary +6.37% YTD, Industrials +5.14% YTD, Materials +5.13% YTD, and Consumer staples +5.12% YTD.

Underperforming Sectors:, Financials +4.98% YTD, Real Estate +1.90% YTD, Utilities +1.56% YTD, Telecommunication services -4.51% YTD, and Energy -5.63% YTD.

Disclosure: I am/we are long AAPL.