Market Perspective for November 3, 2017

Strong Apple (AAPL) earnings contributed to the Nasdaq’s 0.94-percent gain this week, while the Dow Jones Industrial Average advanced 0.45 percent.

The labor market strengthened in October with 261,000 new jobs, up from 18,000 in September. The unemployment rate fell to 4.1 percent, the lowest since 2000. Average hourly earnings were flat. Weekly initial claims for unemployment dipped to 229,000 in the week ended October 28. Strong employment conditions lifted consumer confidence last month. The Conference Board’s Consumer confidence survey spiked to 125.9, an increase of more than 6 points from September. It was also the best reading in nearly two decades.

Factory orders increased by a faster-than-expected 1.4 percent in September. The manufacturing and service PMIs for October improved. Productivity growth hit 3 percent in the third quarter. September construction spending increased 0.3 percent, despite flat predictions. Auto sales hit an annualized pace of 18.1 million in October, the second consecutive month above 18 million.

Positive economic reports briefly pushed the Atlanta Federal Reserve’s fourth quarter estimate to 3.3 percent. Economists predict growth of 2.7 percent. The Federal Reserve left rates unchanged at this week’s meeting, as anticipated. Data and growth projections have pushed the odds of a December rate hike to 100 percent.

President Trump announced the appointment of Jerome Powell to replace Federal Reserve Chair Janet Yellen when her term expires in January. Although investors expect him to stay the course on interest rates, they also believe he’ll support broader bank deregulation.

Apple (AAPL) earned $2.07 per-share, well above estimates of $1.87. It also beat sales estimates by nearly $2 billion. iPhone sales were 1.5 percent above forecasts. Shares gained 5.75 percent on the week.

Pfizer (PFE) beat earnings and announced potential changes to its consumer health division. Shares rallied on the news. Kraft Heinz (KHC) missed sales estimates, but beat earnings by 1 penny.  Starbucks (SBUX), MetLife (MET) and Occidental Petroleum (OXY) also reported strong quarterly earnings this week.

The U.S. dollar saw a small gain this week due to weakness in the Japanese yen. Although the odds of a December rate hike increased, the 10-year Treasury yield retreated below 2.4 percent. While long-term rates fell, the 2-year Treasury yield climbed above 1.6 percent. Short-term higher-yielding credit funds, such as Thompson Bond (THOPX), marched higher on the week.

Stocks rallied as House Republicans unveiled a proposed tax cut plan this week, while homebuilder stocks dipped. The bill includes a reduction in the mortgage deduction from $1 million to $500,000. iShares U.S. Home Construction (ITB) declined 0.6 percent for the week, but remains near its 52-week high.

Crude oil closed the week above $55 a barrel for the first time in over two years after the U.S. rig count declined.


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