Month: December 2017

Equities rallied to new highs on Monday as the tax bill heads for passage. President Trump is expected to sign the bill later this week. The small-cap Russell 2000 gained more than 1 percent. The Nasdaq crossed 7000 for the first time, before closing at 6,994.76. Sectors with higher tax rates, such as banks and retail, were up substantially.

Investors should be on the lookout for capital gains and dividend distributions this week. Some financial websites don’t immediately adjust prices for the distributions and may briefly show a large one-day loss.

Homebuilder optimism hit a new Millennium high in December. The National Association of Homebuilders survey registered 74, up from 70 in November. Housing starts and building permits for November will be out on Tuesday, existing home sales on Wednesday. New home sales for November will be released on Friday. Analysts predict an annualized pace of 655,000.

Economists expect the third and final estimate of fourth-quarter GDP growth will remain at 3.3 percent. The Atlanta Federal Reserve GDP Model also forecasts 3.3 percent growth (as of December 14^th). Core inflation, consumer spending and personal income data will be included in the GDP report. Economists expect core inflation of 0.1 percent, down from the prior estimate of 0.2 percent. They see personal income growth holding steady at 0.4 percent. Consumer spending is expected to be revised higher, from 0.3 to 0.5 percent.

Japanese exports grew 16.2 percent year-on-year in November. The trade surplus was $1 billion, beating expectations of $0.4 billion. Exports to China increased 25.1 percent. WisdomTree Japan Hedged Equity (DXJ) rallied more than 1 percent on the news.

Following the Fed’s rate hike the 10-year Treasury yield closed last week at 2.36 percent. The 30-year yield closed at 2.69 percent, not far from its 2017 low. In contrast, Federal Reserve rate hikes at the short end have pushed the 2-year yield to 1.84 percent, the highest since 2008.

The U.S. Dollar Index climbed above 94 in early Monday trading, before closing at 93.70. In the past three months, it has traded as high as 95 before pulling back.

Several important earnings reports will be out this week. FedEx (FDX) will report on Tuesday. Analysts forecast $2.87 per-share in earnings. Micron Technology (MU), a component in semiconductor funds, is expected to report $2.12 in earnings per-share, up from $0.28 a year ago.

Carnival (CCL), Red Hat (RHT), Darden Restaurants (DRI), CarMax (KMX), Nike (NKE), Paychex (PAYX), Bed Bath & Beyond (BBBY) and ConAgra (CAG) are also scheduled to report this week.

Equities marched higher this week in response to higher interest rates and tax reform progress.  The Nasdaq led with a rally of 1.41 percent. The Dow Jones Industrial Average followed with an increase of 1.33 percent.

The Federal Reserve raised interest rates a quarter point to a range of 1.25 to 1.50 percent, as anticipated. SPDR Financials (XLF) fell slightly though the long-term outlook for financials has improved with economic forecasts and a hawkish Fed statement. Fed officials expect three rate hikes next year and hiked the GDP growth forecast for 2018 from 2.1 to 2.5 percent. They also lowered their unemployment forecast from 4.1 to 3.9 percent. The Fed also lowered its inflation forecast.

Rate hike expectations for March rose to 63 percent, and the odds of a June hike hit 84 percent following Fed Chair Janet Yellen’s last FOMC meeting. Jerome Powell will assume the role at the January meeting.

Strong economic data pushed the Atlanta Fed’s estimate of fourth-quarter GDP growth to 3.3 percent. Weekly jobless claims were 10,000 lower than expected at 225,000. The lowest figure this year was 223,000 initial claims for the week of October 14^th. November retail sales increased 0.8 percent, doubling expectations. Sales ex-autos rose 1.0 percent. The flash Markit manufacturing PMI for December hit 55.0, up from 53.9 last month. It signals a faster pace of expansion in the manufacturing sector. Inflation data was mixed, with the PPI and CPI hitting headline expectations, but core CPI missing with an increase of only 0.1 percent.

Chinese economic data showed slowing. Chinese officials are expected to trim their GDP forecast for 2018. The European Central Bank left interest rates and the asset buying program unchanged. iShares MSCI EAFE (EFA) gained 0.19 percent. iShares MSCI Emerging Markets (EEM) increased 0.50 percent. SPDR S&P 500 (SPY) rose 0.81 percent, extending the outperformance of domestic markets.

Traders initially sent the U.S. dollar lower following the Fed meeting, but it recovered most of its losses on Friday. The euro fell after the ECB held steady and Italy announced elections for March. Anti-euro and anti-EU parties have dominated early polling. iShares MSCI Italy (EWI) erased four months of modest gains this week, losing 3.13 percent.

Oracle (ORCL) beat earnings and revenue forecasts, but it missed on cloud revenue. Shares fell 3.77 percent on Friday following the report. The miss didn’t dent the software sector, however.  iShares North American Software (IGV) gained 1.27 percent on the day following solid gains and a new all-time high from Microsoft (MSFT).

Costco (COST) shares jumped 3.32 percent to a new all-time high after it beat estimates.

The Dow Jones Industrial Average and S&P 500 Index opened at new all-time highs on Monday ahead of Wednesday’s Federal Reserve meeting. The Federal Open Market Committee will hike interest rates by a quarter point this week. The market has already discounted this move.

Job openings hit 6.0 million in October, down from 6.2 million in September. Producer prices are due on Tuesday, with forecasts calling for 0.4 percent inflation in November. China reported a slowdown in its PPI, from 0.7 percent in October to 0.5 percent last month. Economists forecast a 0.4 percent increase in consumer prices and 0.2 percent in core CPI.

Weekly jobless claims are expected to remain below 240,000. Analysts see November retail sales rising 0.4 percent and 0.7 percent ex-autos. The flash manufacturing PMIs for December are due this week, along with industrial production and capacity utilization for November.

China reported a surge in November new loans. Analysts expected 800 billion yuan in new lending, but banks lent out more than 1.1 trillion. Fixed-asset investment and industrial production data will be out later this week. The European Central Bank will meet on Thursday. Investors expect it will hold rates steady at zero percent.

West Texas Intermediate crude opened the week at $57 per barrel. SPDR Energy (XLE) opened strong on Monday and is approaching its 2017 high, set in early November. Strong production in the United States is keeping a lid on prices domestically, but Brent oil rose to a 2-year high after a pipeline in the North Sea was shut for leak repair. Repairs could take several weeks.

The U.S. Dollar Index dipped in overnight trading. The greenback has remained in an uptrend since September. Emerging markets bounced on Monday, but as a group, have underperformed the S&P 500 Index since September. Most of the underperformance came in the past two weeks as Chinese shares sold off.

This week will be light on earnings. Oracle (ORCL), Adobe (ADBE), Costco (COST), Pier1 Imports (PIR) and ABM Industries (ABM) will be the largest companies reporting.