Market Perspective for December 18, 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 14th). 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.

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