The U.S. equity markets diverged amid continued global economic optimism following an upward revision to Q3 GDP and optimistic signs of progress in the Senate’s tax reform bill.
Treasury yields rose on the heels of a favorable economic outlook from Fed Chair Yellen, to the benefit of financials, but technology stocks tumbled, severely pressuring the Nasdaq.
Crude oil prices were lower, extending losses ahead of tomorrow’s OPEC meeting and following mixed oil inventory data, while gold was lower and the U.S. dollar was little changed.
The Dow Jones Industrial Average (DJIA) rose 104 points (0.4%) to 23,940
The S&P 500 Index fell nearly a point to 2,626
The Nasdaq Composite tumbled 88 points (1.3%) to 6,824
In heavy volume, 922 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq
WTI crude oil fell $0.69 to $57.30 per barrel and wholesale gasoline lost $0.04 to $1.73 per gallon
The Bloomberg gold spot price decreased $8.94 to $1,285.04 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 93.24
Q3 GDP revised higher, Fed comes into focus
On inflation, the GDP Price Index was revised to a 2.1% increase, versus expectations of an unrevised 2.2% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 1.4% increase, compared to forecasts of an unrevised 1.3% rise.
The second look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 3.3%, up from the first release’s 3.0% gain. The Bloomberg forecast called for an adjusted 3.2% pace of expansion. Q2 GDP grew by an unrevised 3.1% rate. Personal consumption came in at a 2.3% gain for Q3, lower than the preliminary estimate of a 2.4% increase, and compared to the expectations of a 2.5% increase. Personal consumption grew by an unrevised 3.3% in Q2.
Pending home sales rose 3.5% month-over-month in October, versus projections of a 1.0% rise, and following the negatively-revised 0.4% decline registered in September. Compared to last year, sales were 1.2% higher, versus estimates of a 3.0% gain. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in October.
The MBA Mortgage Application Index declined 3.1% last week, following the prior week’s 0.1% gain. The decrease came as a 7.7% drop in the Refinance Index more than overshadowed a 1.8% increase in the Purchase Index. The average 30-year mortgage rate remained at 4.20%.
Today the Fed is garnering attention as Chairwoman Janet Yellen delivered her U.S. economic outlook to the Joint Economic Committee of Congress, noting the economic expansion is increasingly broad-based and she continues to expect gradual adjustments in the stance of monetary policy. However, she pointed out that although recent lower readings on inflation likely reflect transitory factors, it is possible that this year’s low inflation could reflect something more persistent.
Treasuries finished lower, as the yield on the 2-year note increased 2 basis points (bps) to 1.77%, the yield on the 10-year note gained 5 bps to 2.38%, and the 30-year bond rate rose 6 bps to 2.82%.
The yield curve has steepened somewhat after a recent bout of flattening that appeared to foster some market weariness, while the U.S. dollar dipped after a two-day rebound, extending a pullback as of late.
The markets shrugged off flared-up geopolitical concerns following yesterday’s missile launch by North Korea, aided by the positive global backdrop and signs of progress regarding the Senate’s tax reform bill, which is expected to be voted on later this week. The House passed its bill two weeks ago, with several key differences setting the stage for a complicated reconciliation process.
Personal income and spending will highlight tomorrow’s economic calendar, with both measures forecasted to have gained 0.3% m/m during October following their respective 0.4% and 1.0% m/m gains the month prior, while weekly initial jobless claims will also be released, expected to tick higher to a level of 240,000 from the prior week’s 239,000. The Chicago Purchasing Manager Survey will be released later in the morning, with economists anticipating a decline in the index to 63.0 for November from October’s 66.2 reading.
Europe and Asia mixed ahead of data, North Korean missile launch has little impact
European equity markets traded mixed, with financials getting a boost as bond yields in the region gained solid ground. Global economic optimism remained elevated, bolstered by signs of progress in tax reform and today’s upbeat revision to Q3 GDP out of the U.S., along with cooled political concerns on this side of the pond. The apparent rotation out of the tech sector that intensified in the U.S. made its way over to Europe late in the session to cause the markets to give up some solid early gains.
Crude oil prices extended a weekly loss ahead of tomorrow’s OPEC meeting and following some mixed inventory data in the U.S. The pound rallied against the U.S. dollar to hamstring the U.K. markets after Britain and the European Union reportedly agreed to reach a Brexit divorce bill, which could pave the way for negotiations of the exit to move forward. German consumer price inflation was mostly hotter than expected, French Q3 GDP rose at a pace that matched forecasts and Eurozone economic confidence improved. The euro moved higher versus the greenback
The U.K. FTSE 100 Index was down 0.9% and Switzerland’s Swiss Market Index traded 0.2% lower, while Germany’s DAX Index was flat, France’s CAC-40 Index ticked 0.1% higher, Italy’s FTSE MIB Index increased 0.2%, and Spain’s IBEX 35 Index rallied 1.2%.
Stocks in Asia finished mixed, following the solid gains in the U.S. yesterday on further signs the economy is running healthy and progress toward tax reform. However, the markets likely treaded with some caution ahead of key economic data out of Japan and China tomorrow, which will coincide with the highly-anticipated OPEC production meeting and potential U.S. tax reform vote, and follow today’s U.S. GDP revision and testimony from Fed Chief Yellen. The markets mostly shrugged off yesterday’s latest missile launch by North Korea.
The yen gave back some recent gains to help lift Japanese equities and overshadow a softer-than-expected retail sales report, while markets in South Korea and India dipped. Mainland Chinese stocks ticked slightly higher, but those traded in Hong Kong fell and Australian listings saw modest gains.