Month: December 2017

Equities turned higher mid-week. The Dow Jones Industrial Average rose 0.48 percent on the week, the Nasdaq climbed 0.14 percent. The small-cap Russell 2000 slipped 1.05 percent.

SPDR Financials (XLF) rose 1.56 percent to lead the major sectors. SPDR Industrials (XLI) followed with a gain of 1.49 percent. SPDR Utilities (XLU) slid 0.96 percent, iShares U.S. Telecommunications (IYZ) 4.01 percent.

Weekly jobless claims fell to 236,000 beating expectations by 4,000. 228,000 new jobs were created in November, better than consensus forecast of 200k. Unemployment held steady at 4.1 percent. Wage growth was 0.2 percent, less than the 0.3 percent expected. Manufacturers hired 31,000 new workers and the unemployment rate in that sector slid to 2.6 percent. Restaurants and bars hired 18,900 workers in November, retail 18,700.

Wholesale inventories fell 0.5 percent in October, likely due in part to hurricanes. Because this dip was expected, it didn’t impact fourth quarter growth forecasts. The University of Michigan’s consumer sentiment survey fell to 96.8 in early December. It missed forecasts of 99. Most consumers said current conditions improved, but they became less optimistic about the future. The shift was mainly concentrated in high tax states that are set to lose state and local tax deductions under tax reform.

The U.S. Dollar Index rose every day this week. Fundamental factors such as tax reform are working in the greenback’s favor. Political turmoil surrounding Brexit boosted the dollar versus the British pound. EU officials sent the pound lower after saying a trade deal is unlikely by March 2019. The Canadian central bank held interest rates steady and the loonie tumbled in response. Both the euro and yen also weakened versus the dollar.

The S&P 500 Index outperformed the MSCI EAFE for the eighth time in eleven weeks. At one point this summer, iShares MSCI EAFE (EFA) was beating the SPDR S&P 500 (SPY) by 7 percentage points. That lead is down to 2 percent as we head into year-end. Only one month ago, iShares MSCI Emerging Markets (EEM) had a 16 percentage-point lead on SPY. That lead was cut in half over the past two weeks as Chinese shares slumped. EFA rose 0.01 percent this week, EMM 0.22 percent.

Crude oil settled into the mid-$50 range this week, spending most of the time between a $56 and $58 handle. Strong Chinese import demand and a potential strike in Nigeria kept prices from drifting lower. SPDR Energy (XLE) fell 0.57 percent.

Earnings news was mixed this week. Shares of Broadcom (AVGO) and Toll Brothers (TOL) fell after delivering results. Autozone (AZO), American Eagle Outfitters (AEO), lululemon (LULU) and Dollar General (DG). Shares of H&R Block (HRB) rose sharply.

The rotation to finance continued Monday. SPDR Financials (XLF) climbed more than 2 percent at the open and closed with a 1.52 percent gain. while SPDR Technology (XLK) slid more than 1.6 percent. Materials, industrials, consumer staples and consumer discretionary also rallied. The Dow Jones Industrials led major indexes. The Dow Jones Transportation Index jumped nearly 2 percent.

The House and Senate versions of tax reform bills will be merged into a final bill that could be on the President’s desk before Christmas. The final corporate tax rate could be as high as 22 percent, but it will represent a significant cut from the current top rate of 35 percent.

Companies that do most of their business in the United States derive the greatest benefit from these cuts, as will banks, homebuilders, truckers, utilities, retail, materials, air transportation and insurance. Over the past six trading days, the S&P 500 has gained about 2 percent.

Factory orders in October slipped 0.1 percent, but beat expectations of a larger decline. Tomorrow the service PMIs will be out. Wednesday will bring revised third-quarter productivity numbers and the ADP employment report for November. The Bureau of Labor Statistic’s employment report will be out on Friday. Economists forecast 204,000 new jobs and a 4.1 percent unemployment rate.

Overseas data will include Chinese trade and inflation figures for November, Canadian housing starts, plus Australian and Japanese third-quarter GDP growth. The Bank of Canada will meet on Wednesday. No interest policy change is expected. Britain reached a border deal with Ireland on Monday. It was a potential sticking point for Brexit.

CVS Health (CVS) will buy health insurer Aetna (AET) for $68 billion to stave off the competitive threat from Amazon (AMZN). In October, Amazon acquired a pharmacy license.

Crude oil opened the week at $58 a barrel and slipped to $57 on Monday. Crude has spent the past month bouncing between $55 and $59 a barrel.

The U.S. Dollar Index rose on Monday as currency markets also priced in the likely passage of tax reform. Odds of a Federal Reserve rate hike in March rose from near 50 percent on Friday to more than 60 percent on Monday.

Autozone (AZO), Toll Brothers (TOL), Broadcom (AVGO), American Eagle Outfitters (AEO), lululemon (LULU), H&R Block (HRB) and Dollar General (DG) will report earnings this week.