The Russell 2000 gained 1.2 percent on the week, and the Nasdaq rallied 0.5 percent. The Dow Jones Industrial Average and S&P 500 Index saw small losses of 0.3 and 0.1 percent.
The House passed its version of tax reform on Thursday. Attention now turns to the Senate, which must pass its version before the two can hash out the differences in conference. Heading into this week, lawmakers were hoping to have both bills passed by Thanksgiving and the final bill on the President’s desk by Christmas. One GOP Senator already came out against the Senate bill, however, citing the high tax rates for partnerships and other businesses that do not incorporate. Investors have priced tax reform into stocks and its failure could have repercussions for the 2018 midterm Congressional elections, as well as Federal Reserve policy and the economy. Fed officials have factored fiscal stimulus from Washington into their rate hike plans this year and next. Consumer confidence rose sharply this year, partly in expectation of higher disposable income following tax cuts.
Producer prices rose faster than expected, up 0.4 percent in October versus 0.1 percent expected. Headline consumer prices rose 0.1 percent and core CPI 0.2 percent. Both met expectations. October retail rales exceeded forecasts. Initial claims for unemployment rose to 249,000 last week, in line with the 2017 average of 245,000. Industrial production and capacity utilization were stronger than expected in October. The National Association of Homebuilders’ confidence index rose to 70, the highest level since February. Housing starts and building permits for October also beat forecasts.
Overseas data was mixed. Inflation data in Europe and Canada met expectations. Chinese investment data showed signs of a slowdown.
Crude oil prices eased during the week, but climbed back above $56 on Friday. U.S. production has been rising, in addition to the higher rig count. SPDR Energy (XLE) fell 3.2 percent on the week.
General Electric (GE) announced a 50-percent cut to its dividend this week. Shares fell more than 10 percent from Friday’s close to Tuesday’s before rebounding. The dip pulled SPDR Industrials (XLI) down 0.8 percent for the week.
Even though inflation data was dollar-positive this week, the U.S. Dollar Index declined 0.6 percent as the euro and yen rallied. Both currencies are nearing their two-month highs. The 10-year Treasury yield fell to 22.35 percent after starting the week at 2.40 percent.
Brick-and-mortar retailers rallied this week after sporting goods retailers reported solid earnings. Shares of Footlocker (FL) gained 28 percent on Friday following its earnings report. While physical retail performed well, the best news came from Wal-Mart’s (WMT) online division. Wal-Mart (WMT) climbed double-digits on Thursday, to a new all-time high, after it reported online sales growth of 50 percent. That helped the firm beat earnings estimates by three cents and revenue forecasts by $2 billion. Same-store sales were strong too, up 2.7 percent versus forecasts of 1.8 percent. Rising grocery sales also drove shares higher. Grocery stocks, including Wal-Mart, slumped in June when Amazon (AMZN) announced its purchase of Whole Foods. Wal-Mart’s strong results indicate it is handling the competitive threat well.