Market Perspective for December 22, 2017

Traders drove up tax-sensitive shares early in the week and sold as the tax reform bill became law on Friday. Nevertheless, the Russell 2000 and Dow Jones Industrials Average gained 0.82 and 0.42 percent for the week. The S&P 500 and NASDAQ both gained 0.30 percent this week.

Several companies responded to tax cuts with bonus and reinvestment announcements. AT&T (T), Comcast (CMCSA), and Fifth Third (FITB) promised $1,000-dollar bonuses to employees, Wells Fargo (WFC) hiked its minimum wage to $15 an hour, and Boeing (BA) announced a $300 million training and facilities investment.  All five companies outperformed the S&P 500 Index this week.

The 10-year yield jumped to its highest level since March and briefly touched 2.5 percent, battering SPDR Utilities (XLU) to a 4.69-percent decline. Floating-rate and high-yield bond funds were insulated from the move. PowerShares Senior Loan Portfolio (BKLN) and iShares High Yield Corporate Bond (BYG) climbed, while treasury and investment-grade bond funds, including corporate bond funds, declined.

Housing data was strong this week. The NAHB Homebuilders confidence survey hit its highest level since 1999. Building permits for November missed expectations, but still rose 3.1 percent from year-ago levels. November housing starts and existing sales both beat forecasts. New home sales crushed expectations of 658,000, hitting an annualized pace of 733,000. iShares U.S. Home Construction (ITB) increased 1.89 percent.

Third-quarter GDP was revised to 3.2 percent, down 0.1 percent. This was the final estimate. The savings rate fell to 2.9 percent in November, the lowest in a decade. Consumer spending rose 0.6 percent. Core inflation was subdued at 0.2 percent, but that was double the forecast. Consumer confidence dipped slightly according to the University of Michigan survey. As has been the case all year, there was a wide gap between Republicans and Independents, and Democrats, in their outlook for the economy. Jobless claims were higher than expected at 245,000, but remain near four-decade lows.

FedEx (FDX) beat earnings expectations this week, sending shares to a new all-time high. Management hiked guidance and believe the tax reform bill will save the company $1.5 billion. It also pushed the Dow Transports to a new record high. iShares Dow Transports (IYT) gained 2.82 percent for the week.


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