Monthly Archives: December 2017

Market Insights 12/29/2017

U.S. stocks finished the final trading session of 2017 lower, capping off a year that delivered a global rally on broad-based economic growth and strong earnings.

Treasury yields dipped in an abbreviated session and the U.S. dollar remained under pressure. Crude oil prices extended a rally and gold was higher.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 118 points (0.5%) to 24,719

The S&P 500 Index was 14 points (0.5%) lower at 2,674

The Nasdaq Composite decreased 47 points (0.7%) to 6,903

In light volume, 704 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.31 to $60.15 per barrel and wholesale gasoline gained $0.01 to $1.80 per gallon

The Bloomberg gold spot price moved $8.29 higher to $1,303.33 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 92.27

Markets were lower for the week, as the DJIA decreased 0.1%, the S&P 500 Index was 0.4% lower and the Nasdaq Composite declined 0.8%

Treasury yields dip and U.S. dollar continued to decline

Treasuries traded higher, with the economic calendar void of any major releases. The yields on the 2-year and 10-year notes, along with the 30-year bond, declined 2 basis points to 1.89%, 2.41% and 2.74%, respectively.

Treasury yields slipped as the curve flattened a bit this week, while the U.S. dollar extended its drop in the abbreviated final week of the year that was light on volume and data. The stock markets were lower on the week, but closed out 2017 with a strong rally that was fueled by broad global economic growth and strong corporate earnings, as well as the lead up to last week’s passage of the Tax Cuts and Jobs Act.

Although abbreviated, the first week of 2018 will deliver a flood of key economic reports, with the ISM Manufacturing Index and non-Manufacturing Index being accompanied by the minutes from the Fed’s December policy meeting, monthly auto sales, trade balance and factory orders. However, the week will culminate with the release of the December non-farm payroll report.

We anticipate solid growth in 2018 and don’t see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected. Thoughts Heading into ’18, pointing out that 2017 was a remarkable year marked by record low volatility and the ongoing strong bull run for the tech sector. In our view, a repeat of 2017 is unlikely, and we’re expecting more sector changes in 2018 than there were in 2017.

Please note: All U.S. markets will be closed on Monday due to the New Year holiday.

Europe limps to 2017 finish line, while Asia closes out a strong year in quiet fashion

European equities finished mostly lower, with the euro moving higher as the U.S. dollar continued to see pressure, though volume remained muted in the final trading session of 2017 and as some markets closed early today. U.K. stocks traded higher despite some noticeable strength in the British pound, bolstered by the extended rally in the mining sector, which helped the index hit a fresh record high. Bond yields in the region were mostly higher after German consumer price inflation data came in a bit hotter than expected for this month. Italian stocks led to the downside amid some political uncertainty as the country’s president dissolved parliament and called for an election for March 4, 2018. European stocks have participated in the global rally of 2017, highlighted by double-digit gains in Germany, Italy and Switzerland.

Stocks in Asia finished mixed in light volume in the final trading session of 2017, with South Korean markets closed. Japanese equities dipped as the yen continued to move higher with the pressure on the U.S. dollar persisting. Shares trading in mainland China and Hong Kong advanced on the heels of some stronger-than-expected Hong Kong trade data reported late yesterday. Australian securities retreated despite the extended advance in materials stocks, while Indian stocks snapped a two-day losing streak. The strong rally in Asia this year was highlighted by a near 36% surge in Hong Kong’s Hang Seng Index and an approximate 28% jump for India’s BSE Sensex 30 Index, while Japan’s Nikkei 225 Index posted a decisive 19% gain.

U.S. Market Weekly Summary – Week Ending 12/29/2017

S&P 500 Slips 0.4% in Final Week of 2017, Led by Technology; Weekly Move Puts 2017 Gain at 19%

The Standard & Poor’s 500 index edged down 0.4% this week, led by the technology sector, as investors exhibited a bit of caution heading into the new year.

The index ended Friday’s session, which also marked its closing level for 2017, at 2,673.61, down from last week’s closing level of 2,683.34. This puts the measure’s 2017 increase at 19.4%, marking its largest increase in a year since 2013.

The index’s weekly decline was led by the technology sector, which fell 1.0%. On the other end, the real-estate sector posted the largest percentage increase of the week, 1.3%. All other sectors had only slight moves, edging up or down by less than 1.0% each.

This week’s activity came in thin volume as many traders were on vacation and the news and data flows were light. The stock market will be closed Monday for New Year’s Day and is set to reopen on Tuesday, Jan. 2, for the kickoff to 2018 trading.

The technology sector’s decliners included Apple (AAPL), whose shares fell 3.3% amid speculation of weaker-than-expected iPhone X sales that prompted Street analysts to trim their forecasts for the company’s sales. The drop also came as Apple has been facing criticism about a slowdown in the performance of older iPhone models; this prompted Apple to apologize Thursday for how it handled the concerns and say it will cut the prices of replacement batteries.

The real-estate sector’s advancers this week included Iron Mountain (IRM), whose shares rose 0.2% since last Friday as the company said it completed a private offering of $825.0 million in 5.25% senior notes due 2028. The company intends to use net proceeds of $813.1 million, together with net proceeds from its recent public offering of 14.5 million shares of its common stock and cash on hand, to finance the purchase price of the acquisition of IO Data Centers.

Among other sectors in focus, the energy sector edged up 0.2% this week as oil prices moved higher, edging above the $60-a-barrel level on the New York Mercantile Exchange and marking their highest levels since 2015. Boosting the commodity, data showed US crude inventories were down last week for the sixth consecutive week.

Gainers in the energy sector included EQT (EQT), whose shares added 8.9% this week as BMO Capital Markets raised its earnings estimates for the midstream energy company through 2020. BMO cited guidance EQT released earlier this month that the firm sees as “a more capital-efficient outlook with higher cash margins.”

Shares of Cabot Oil & Gas rose 3.7% this week as BMO said the company’s agreement announced last week to sell its Eagle Ford assets for $765 million highlights the return profile of its position in the Marcellus Formation. In addition, the firm said the deal lowers Cabot’s expected operating costs and bolsters its balance sheet with $1 billion of cash on hand in 2018.

Market Insight 12/28/2017

U.S. stocks traded slightly to the upside as global data and trading volume remained muted in the winding down of 2017.

Treasury yields ticked higher after dropping yesterday and the U.S. dollar extended its recent dip despite some upbeat regional manufacturing activity.

Crude oil prices were lower despite some bullish government inventory data and gold managed minor gains

The Markets…

The Dow Jones Industrial Average (DJIA) gained 63 points (0.3%) to 24,837

The S&P 500 Index was 5 points (0.2%) higher at 2,688

The Nasdaq Composite was 11 points (0.2%) higher at 6,950

In light volume, 526 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.20 to $59.84 per barrel and wholesale gasoline declined $0.01 to $1.79 per gallon

The Bloomberg gold spot price moved $7.47 higher to $1,294.64 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 92.65

Jobless claims unexpectedly unchanged, regional manufacturing activity surprisingly jumps

Weekly initial jobless claims remained at the prior week’s unrevised 245,000 level, versus the Bloomberg forecast of a decline to 240,000, The four-week moving average rose by 1,750 to 237,750, while continuing claims gained 7,000 to 1,943,000, north of estimates of 1,900,000.

The Chicago Purchasing Managers Index jumped to the highest since March 2011, rising to 67.6 for December, from 63.9 in November, and better than expectations calling for a decline to 62.0. New orders and production both moved solidly higher. A reading above 50 denotes expansion.

The advance goods trade deficit surprisingly widened to $69.7 billion in November, from the downwardly revised $68.1 billion in October, and compared to expectations of $67.9 billion.

Preliminary wholesale inventories rose more than expected, gaining 0.7% month-over-month in November, versus forecasts for a 0.3% increase, and following October’s favorably revised 0.4% decline.

Treasuries dipped, with the yields on the 2-year note and the 30-year bond ticking 1 basis point (bp) higher to 1.90% and 2.76%, respectively, while the 10-year note yield rose 2 bps to 2.43%.

Treasury yields regained some of yesterday’s drop, the U.S. dollar remained under pressure, and the stock markets continued to trade near record highs in the second-to-last trading session of 2017. The markets are grappling with broad-based global economic growth, subdued inflation, and the recently passed tax reform.

Going into 2018, global earnings growth continues to be strong, while interest rates and inflation remain low and relative valuations of stocks to bonds reasonable–typical of the later stages of a market cycle. We anticipate solid growth in 2018 and don’t see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

Europe mostly dips as 2017 nears the end, Asia mixed on low volume

European equities mostly slipped, with the euro and British pound moving higher versus the U.S. dollar and weakness for the technology sector in the region festered. However, data was light, along with volume amid the abbreviated last week of 2017. Bond yields in the region finished higher.

Stocks in Asia finished mixed following the modest rebound in the U.S., but volume continued to be subdued as the markets coast into the New Year on the strong gains seen in 2017.

The yen gained ground late in the session to weigh on Japanese equities, which declined despite stronger-than-expected reads on the nation’s retail sales and industrial production.

Technology issues rebounded, fostering a rally for South Korean stocks, and helping mainland Chinese shares move higher and equities in Hong Kong advance. Australian securities rose on the heels of the recent rise in commodity-related issues, while deficit concerns continued to pressure Indian markets.

Market Insights 12/27/2017

U.S. stocks finished slightly higher after slipping yesterday, with volume and data remaining light in this final trading week of 2017.

Treasury yields pulled back after a recent rally and the U.S. dollar remained under some pressure, while Consumer Confidence retreated and pending home sales unexpectedly rose.

Crude oil prices gave back some of yesterday’s rally and gold was higher.

The Markets…

The Dow Jones Industrial Average gained 28 points (0.1%) to 24,774

The S&P 500 Index was 2 points (0.1%) higher at 2,683

The Nasdaq Composite was 3 points higher to 6,939

In light volume, 548 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.33 to $59.64 per barrel and wholesale gasoline gained $0.01 to $1.80 per gallon

The Bloomberg gold spot price moved $4.74 higher to $1,287.84 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 93.03

With data on the light side, Treasury yields retreated from a rally as of late and the U.S. dollar continued to see pressure, while the stock markets are not far from record highs in an abbreviated final week of 2017. Heading into the New Year, we anticipate solid growth in 2018 and don’t see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

Tax reform remains the big topic of focus for the markets, we believe we remain in a secular bull market and the runway between now and real trouble for either stocks or the economy remains relatively long. However, for reasons including the possibility of a “buy on the rumor, sell on the news” period around the passage of tax reform—and the possibility it doesn’t boost earnings growth significantly—some bumps along the runway should be expected.

Consumer Confidence retreats from a 17-year high, pending home sales surprisingly grew

The Consumer Confidence Index declined from November’s 17-year high of 128.6, falling to 122.1 in December, versus the Bloomberg estimate of a 128.0 reading. An improvement in the Present Situation Index was overshadowed by a drop in the Expectations Index of business conditions for the next six months. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—dipped to 20.5 from the 20.7 level posted in November.

Pending home sales unexpectedly rose, increasing 0.2% month-over-month in November, versus projections of a 0.4% decrease, and following the unrevised 3.5% jump registered in October. Compared to last year, sales were 0.6% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which jumped to near an 11-year high in November.

Treasuries finished higher, with the yield on the 2-year note dipping 2 basis points to 1.89%, the yield on the 10-year note dropping 7 bps to 2.41%, and the 30-year bond rate falling 8 bps to 2.75%.

Tomorrow, the U.S. economic calendar will include the advance goods trade balance, forecasted to have narrowed slightly in November to a $67.9 billion shortfall, followed by preliminary wholesale inventories for November, expected to have ticked 0.3% higher m/m. Weekly initial jobless claims will also be released, expected to be lower at a level of 240,000 from the prior week’s 245,000. The Chicago Purchasing Manager Survey will round out the day, with economists anticipating a decline in the index to 62.0 for December from November’s 63.9 reading.

Europe and Asia mixed

European equities finished mixed, with the major markets returning from the Christmas holiday break, though volume and data remained subdued in the shortened final week of the year.

Technology issues saw pressure as Apple suppliers weighed on the sector in the wake of yesterday’s reports that Apple could cut its iPhone sales forecast. However, commodity-related stocks moved higher as copper prices rallied with a top China producer being ordered to halt output to combat winter pollution, per Bloomberg, and crude oil prices jumped yesterday on the news of a pipeline explosion in Libya. The euro and British pound moved higher versus the U.S. dollar, while bond yields in the region mostly lost ground.

Stocks in Asia finished mixed on the heels of yesterday’s dip in the U.S. and as Hong Kong and Australian markets returned to action following an extended holiday break. Energy stocks gained ground after yesterday’s rally in oil prices on a major pipeline explosion in Libya, while technology issues remained hamstrung following yesterday’s reports that Apple may lower its Q1 iPhone X sales outlook.

China reported that growth in industrial profits slowed significantly in November. However, volume remained subdued in the final week of 2017, which has seen the global markets rally bolstered by the broadest economic growth in a decade that is expected to continue in 2018.

Japanese equities ticked higher, with the yen choppy, while mainland Chinese issues fell. Shares trading in Hong Kong nudged higher and Australian securities finished flat. South Korean equities advanced and Indian stocks declined.

Market Insights 12/26/2017

Stocks Close Lower

U.S. stocks closed lower on light volume in the first session following the Christmas holiday break and the final trading week of the year.

Reports suggesting that Dow member Apple lowered its iPhone X sales outlook hamstrung the tech sector.

Treasury yields finished mixed and the U.S. dollar dipped to extend its recent decline. Home prices topped forecasts and regional manufacturing reports were mixed.

Crude oil prices rallied on reports of a Libyan pipeline explosion and gold traded higher.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 8 points to 24,746

The S&P 500 Index was 3 points (0.1%) lower at 2,681

The Nasdaq Composite lost 24 points (0.3%) to 6,936

In light volume, 527 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq

WTI crude oil increased $1.50 to $59.97 per barrel and wholesale gasoline gained $0.02 to $1.79 per gallon

The Bloomberg gold spot price moved $8.65 higher to $1,282.81 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 93.26

Home prices rise more than expected, regional manufacturing reports mixed

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 6.4% year-over-year gain in home prices in October, versus the Bloomberg expectation of a 6.3% gain. Month-over-month (m/m), home prices were up 0.7% on a seasonally adjusted basis for October, above forecasts calling for a 0.6% rise.

The Dallas Fed Manufacturing Activity Index rose more than expected to highs not seen since 2006, improving to 29.7 in December, from 19.4 in November, and versus forecasts of a slight increase to 20.0. The Richmond Fed Manufacturing Activity Index fell from a level not seen since 1993, dropping to 20 this month, from 30 in November, and versus estimates of a decrease to 21. Readings above zero denote expansion for both indexes.

Treasuries finished mixed, with the yield on the 2-year note ticking 1 basis point higher to 1.90%, while the yields on the 10-year note and the 30-year bond declined 2 bps to 2.47% and 2.82%, respectively.

Treasury yields were mixed after last week’s rally and the U.S. dollar remained under modest pressure, while the stock markets slipped from record highs as of late. These movements developed as the most sweeping tax overhaul in decades was signed into law last week.

Two of the most important drivers of stocks’ ascent this year were synchronized global growth and strong corporate earnings. The prospects for tax reform have been a more recent kicker—and also the proximate cause for the sharper sector rotations we’ve seen lately. We believe we remain in a secular bull market and the runway between now and real trouble for either stocks or the economy remains relatively long. However, for reasons including the possibility of a “buy on the rumor, sell on the news” period around the likely passage of tax reform—and the possibility it doesn’t boost earnings growth significantly—some bumps along the runway should be expected.

International markets mixed as most remain on holiday

The international markets finished mixed following the Christmas holiday, though volume was light with the major markets in Europe remaining closed, along with Hong Kong and Australia. Technology issues saw some pressure, but construction machinery companies helped boost mainland Chinese markets amid some speculation that prices for excavators in China may rise and boost profitability, per Bloomberg.

Japanese equities declined with the yen little changed, and despite reports that showed the nation’s household spending rebounded much more than expected and national consumer price inflation came in a bit hotter than expected in November. Separately, Tokyo reported December consumer price inflation rose more than anticipated. Mainland Chinese shares rebounded and Indian stocks gained ground, while South Korean listings fell.

Market Insights 12/22/2017

U.S. equities finished out the week lower on subdued volume ahead of the Christmas holiday weekend, even as President Trump put his signature to the tax reform bill and the government avoided a near-term shutdown, and despite an unexpected jump in new home sales.

Treasury yields were flat and the U.S. dollar was modestly higher, while crude oil prices were mixed and gold gained ground.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 28 points (0.1%) to 24,754

The S&P 500 Index was 1 point (0.1%) lower at 2,683

The Nasdaq Composite lost 5 points (0.1%) to 6,960

In light volume, 597 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.18 to $58.30 per barrel and wholesale gasoline gained $0.01 to $1.77 per gallon

The Bloomberg gold spot price moved $7.64 higher to $1,274.24 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.93

Markets were higher for the week, as the DJIA increased 0.4%, while the S&P 500 Index and the Nasdaq Composite advanced 0.3%

Durable goods orders miss, personal spending tops forecasts, new homes sales jump again

November preliminary durable goods orders were up 1.3% month-over-month, compared to the Bloomberg estimate of a 2.0% gain, and October’s 0.8% decline was revised to a 0.4% decrease. Ex-transportation, orders dipped 0.1% m/m, versus forecasts of a 0.5% gain and compared to October’s upwardly revised 1.3% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, edged 0.1% lower, versus projections of a 0.5% increase, and following the favorably revised 0.8% rise posted in the month prior.

Personal income rose 0.3% m/m in November, below forecasts to match October’s unrevised 0.4% increase. Personal spending gained 0.6% last month, above expectations of a 0.5% gain, and versus October’s revised 0.2% rise. The November savings rate as a percentage of disposable income was 2.9%. The PCE Deflator was 0.2% higher, below expectations of a 0.3% gain and versus the prior month’s unrevised 0.1% increase. Compared to last year, the deflator was 1.8% higher, matching estimates and compared to October’s unrevised 1.6% gain. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, in line with expectations, and versus the prior month’s unrevised 0.2% gain. The index was 1.5% higher y/y, matching estimates, and compared to October’s unrevised 1.4% increase.

New home sales jumped 17.5% m/m in November to an annual rate of 733,000 units—the fastest pace since July 2007—versus forecasts calling for 655,000 units and the downwardly revised 624,000 unit pace in October. The median home price was up 1.2% y/y to $318,700. New home inventory fell to 4.6 months of supply at the current sales pace from 5.4 in October. Sales surged m/m in the West and jumped in the South, while rising solidly in the Northeast and Midwest. New home sales are based on contract signings instead of closings.

Treasuries were little changed, with the yield on the 2-year note rising 1 basis point to 1.88%, while the yields on the 10-year note and the 30-year bond were flat at 2.49% and 2.84%, respectively

The final December University of Michigan Consumer Sentiment Index was revised lower to 95.9, from the preliminary level of 96.8, below forecasts of 97.2. The index is down from November’s level of 98.5. Compared to last month, the expectations component of the survey fell, more than offsetting a modest uptick in the current conditions portion. The 1-year inflation outlook rose to 2.7% from November’s 2.5% rate, and the 5-10 year forecast remained at 2.4%.

The Kansas City Fed Manufacturing Activity Index for December showed growth decelerated more than expected, with the index declining to 14 from 16 in November, compared to the forecasted 15, but a reading above zero denotes expansion in activity.

Please note: all U.S. markets will be closed on Monday due to the Christmas holiday.

Europe declines in shortened session as politics in focus, Asia higher

European equities traded lower, with volume subdued as some markets in the region closed early ahead of the Christmas holiday weekend. The political front remained in focus as the recent passing of U.S. tax reform and festering U.K. Brexit uncertainty were accompanied by yesterday’s regional election in Catalonia, which saw separatists gain a slight majority and Spanish stocks drop.

The euro and the British pound dipped versus the U.S. dollar, while bond yields in the region finished mixed. In economic news, Q3 GDP growth and consumer spending in France topped forecasts, and U.K. Q3 y/y GDP expansion came in stronger than expected.

Stocks in Asia finished mostly to the upside following yesterday’s rebound in the U.S., but volume was lighter than usual heading into the Christmas holiday weekend. Japanese equities rose modestly, capping off a solid weekly gain, bolstered by optimism regarding U.S. tax reform and as the yen lost some ground. Mainland Chinese stocks dipped, but finished higher on the week, while those traded in Hong Kong advanced, extending weekly gains as property-related issues led the way. Markets in Australia, India and South Korea also saw gains, with the latter rebounding from yesterday’s drop that came from flared-up concerns regarding relations with China.

Stocks tick higher as tax bill passes and housing data shines

Stocks finished slightly higher on the week as Congress passed the most sweeping tax overhaul in decades and the markets appeared to take a breather after finding another gear in the weeks leading up to the passage. Housing data highlighted a heavy dose of economic data that continued to paint a favorable backdrop, with Friday’s jump in new home sales being preceded by housing construction activity topping expectations and existing home sales hitting the fastest pace since December 2006.

The U.S. dollar saw some pressure, and Treasury yields rallied on the tax reform optimism and economic data in the wake of the recent flattening of the curve that has been a source of market concern. Tech, healthcare and consumer staples stocks slipped, while the jump in bond yields supported financials but weighed on the real estate and utilities sectors.

Commodity issues were the best performers, with energy stocks rallying to lead the way, aided by a rise in crude oil prices, bolstered by U.S. data showing crude stockpiles tumbled to the lowest since October 2015 and more than double what was expected, per Bloomberg. Consumer discretionary stocks gained ground ahead of the last holiday shopping weekend.

U.S. Market Weekly Summary – Week Ending 12/22/2017

S&P 500 Edges Up 0.3% on Week as Energy, Materials Climb But Utilities, Real Estate Weigh

The Standard & Poor’s 500 index rose 0.3% this week, with the energy and materials sectors leading to the upside amid gains in related commodities, while the utilities and real-estate sectors weighed to the downside.

The market benchmark ended the week at 2,683.34, up from last week’s closing level of 2,675.71. With just one trading week left to the year, the S&P 500 is up about 20% for 2017.

The energy sector had the largest percentage increase for the week, up 4.5%, amid a rise in crude-oil prices to their highest level since June 2015. Data released Wednesday showed a bigger-than-expected decline in US crude inventories for last week, giving the energy sector a boost.

The energy sector’s gainers included Hess, which jumped 8.3% this week, as well as Apache, which climbed 8.7%. Apache’s gain this week also came as the oil-and-gas explorer and producer said Thursday it has secured 500 million cubic feet per day of natural-gas transport capacity via the Gulf Coast Express Pipeline Project, which will provide Apache access to domestic industrial and utility users. Apache also said it has secured an option for an equity stake of up to 15% in the pipeline.

The materials sector had the second-largest percentage gain this week, up 2.2%, as copper and gold prices rose. Copper reached its highest closing level this week since late October. Among the sector’s gainers, copper-and-gold miner Freeport-McMoRan jumped 6.6% this week.

On the downside, the utilities sector, which tends to run in the opposite direction of the energy sector, had the biggest percentage drop of the week, down 4.7%. While the energy sector is often seen as a play on economic growth, some investors go to utilities for safety given that water, gas and electricity are in demand regardless of the economy. Shares of some utilities with operations in California are also being hurt by concerns about potential liabilities and impacts related to wildfires there.

The utilities sector’s decliners included Pacific Gas & Electric, which fell 16% this week as its board decided to suspend the dividend on the company’s common stock, citing uncertainty related to the October Northern California wildfires. The company noted that in California, if a utility’s equipment is found to have been a substantial cause of the damage in an event such as a wildfire, even if the utility has followed established inspection and safety rules, the utility may still be liable for property damages and attorneys’ fees associated with that event.

The real-estate sector had the second-largest percentage drop of the week, down 2.3%. Decliners included Boston Properties, whose shares slipped 1.6% even as the office-buildings company earlier this week raised its quarterly dividend by 6.7%.

Market Insights 12/21/2017

The U.S. equity markets were able to snap a two-day slide, getting a boost from another upbeat read on leading indicators, as well as leftover enthusiasm from yesterday’s passage of tax reform.

Treasury yields were mixed and the U.S. dollar was little changed, while other reports on the economic front showed a downward revision to Q3 GDP, a jump in jobless claims and more upbeat regional manufacturing data.

Crude oil and gold prices were modestly higher.

The Markets…

The Dow Jones Industrial Average (DJIA) rose 56 points (0.2%) to 24,782

The S&P 500 Index gained 5 points (0.2%) to 2,685

The Nasdaq Composite added 4 points (0.1%) to 6,965

In moderate volume, 779 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.27 to $58.36 per barrel and wholesale gasoline gained $0.01 to $1.75 per gallon

The Bloomberg gold spot price moved $2.49 higher to $1,268.06 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.28

Q3 GDP revised slightly lower, Leading Index continues to climb

The final look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 3.2%, adjusted from the 3.3% expansion posted in the first revision, where it was expected to remain. Q2 GDP expanded by an unrevised 3.1% rate. Personal consumption was revised to a 2.2% gain, from the previously-estimated 2.3% rise, where it was expected to remain, and compared to the unrevised 3.3% increase posted in Q2.

On inflation, the GDP Price Index was unadjusted at a 2.1% gain, in line with forecasts, while the core PCE Index, which excludes food and energy, was adjusted to a 1.3% increase, from a 1.4% rise, where it was expected to remain.

The Conference Board’s Index of Leading Economic Indicators (LEI) (chart) for November rose 0.4% month-over-month, matching projections, and versus October’s unrevised 1.2% jump. This was the fifteenth-straight monthly gain, bolstered by ISM new orders, consumer expectations, the yield curve, credit conditions and stock prices. Jobless claims weighed on the index.

The report suggests the economy remains healthy with the consumer standing on solid ground. The consumer will be in focus tomorrow, with the November personal income and spending report projected to show both accelerated m/m, while the December University of Michigan Consumer Sentiment Index is expected to be revised higher to a strong 97.2 level from 96.8, but down from November’s 98.5 figure. Also, another cog in the economic engine has been an uptick in business spending (capex) and tomorrow’s preliminary November durable goods orders report is projected to show demand for nondefense capital goods excluding aircraft grew 0.5% m/m, posting the fifth-straight month gain that will have seen an average monthly growth rate of over 1.0%. Rounding out the calendar, new home sales and the Kansas City Fed Manufacturing Index will be released.

Weekly initial jobless claims increased by 20,000 to 245,000 last week, versus forecasts of a rise to 233,000, and compared to the prior week’s unrevised 225,000 level. The four-week moving average rose 1,250 to 234,750, while continuing claims increased by 43,000 to 1,932,000, north of estimates of 1,898,000.

Treasuries were mixed, with the yield on the 2-year note rising 2 basis points (bps) to 1.87%, while the yield on the 10-year note dipped 2 bps to 2.48% and the 30-year bond rate declined 4 bps to 2.84%. Schwab’s Chief Fixed Income Strategist Kathy Jones provides a look at the bond markets heading into the New Year, in her video, What Could Fixed Income Investors Expect in 2018?.

Treasury yields diverged after a recent rally that saw the curve steepen and the U.S. dollar paused from a drop as of late, while the stock markets recovered somewhat after a recent wobble from record highs, on the heels of yesterday’s passage of the Tax Cuts and Jobs Act.

Europe higher on the heels of U.S tax reform deal

European equities traded higher, with the euro and British pound little changed versus the U.S. dollar, and energy issues leading the way amid a modest rise in crude oil prices. The global markets assessed yesterday’s tax reform deal in the U.S., which has helped fuel a global market rally.

Political uncertainty remained, as Catalonia is holding regional elections and U.K. Brexit uneasiness lingered, exacerbated by the resignation of a senior minister of Prime Minister Theresa May.

Bond yields in the region finished mixed, with French business and manufacturing sentiment data mixed and U.K. public sector borrowing coming in shy of forecasts, while eurozone consumer confidence rose more than expected.

Stocks in Asia finished mostly to the downside as the markets digested the passage of the U.S. tax reform bill. Japanese equities dipped, paring early losses as the yen continued to decline and the Bank of Japan kept its monetary policy stance unchanged, and South Korean securities fell amid lingering concerns about tensions building with China.

Stocks in Australia declined, while those traded in India nudged lower. However, markets in mainland China and Hong Kong advanced led by insurance and property-related issues.

Random Thoughts

Homes for the holidays. Every recession since 1960 was preceded by a year-over-year double-digit decline in housing starts.

The average was -25%, with the smallest decline (-10%) occurring ahead of the shallowest economic contraction and the largest decline (-37%) happening just before the deepest recession.

The Census Bureau’s most recent seasonally adjusted reading for housing starts showed a 12.9% y/y jump in November, following a 5.4% decline in October.

Confirming the strength in housing starts, existing home sales rose by 5.810 million annualized units in November from 5.500M in October, while FHFA Home Prices are projected to rise to 254.0 in October from 253.0 in September.

Housing is important, in our view, from a consumer sentiment perspective, since few would want to risk purchasing a new home if they were worried about losing their jobs.

Market Insights 12/19/2017

U.S. equities finished lower, as the enthusiasm of the tax reform bill passing in the House that has taken the markets to record highs was diminished by the drag from technology issues.

Treasury yields rallied and the U.S. dollar dipped with single-family home construction eclipsing a more than decade high, while crude oil gained ground and gold was lower.

The Markets….

The Dow Jones Industrial Average (DJIA) fell 37 points (0.2%) to 24,755

The S&P 500 Index was 9 points (0.3%) lower at 2,682

The Nasdaq Composite lost 31 points (0.4%) to 6,964

In moderate volume, 843 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.34 to $57.56 per barrel and wholesale gasoline added $0.03 to $1.70 per gallon

The Bloomberg gold spot price inched $0.03 lower to $1,262.23 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 93.44

Housing construction activity tops forecasts, tax reform bill expected to see vote

Housing starts for November rose 3.3% month-over-month to an annual pace of 1,297,000 units, above the Bloomberg forecast of a 1,250,000 unit rate. October starts were downwardly revised to an annual pace of 1,256,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, declined 1.4% m/m in November to an annual rate of 1,298,000, after October’s upwardly revised 1,316,000 rate, and above the expected annual pace of 1,270,000 units.

This was the highest level of single-family starts in over a decade and single-family permits have increased for three-straight months, complementing yesterday’s 18-year high in homebuilder sentiment. The data suggests housing could bolster Q4 GDP growth after residential fixed investment had been a negative contributor to GDP in the prior two quarters.

Going into 2018, global earnings growth continues to be strong, while interest rates and inflation remain low and relative valuations of stocks to bonds reasonable–typical of the later stages of a market cycle. We anticipate solid growth in 2018 and don’t see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

Treasuries fell, as the yield on the 2-year note rose 1 basis point (bp) to 1.84%, the yield on the 10-year note gained 7 bps to 2.46%, and the 30-year bond rate advanced 8 bps to 2.82%. Treasury yields rallied and the U.S. dollar extended yesterday’s decline, while the stock markets retreated modestly from record highs, with tax reform continuing to garner attention as the House voted to pass the compromised bill this afternoon, with the Senate to follow either later today or tomorrow.

Europe mostly lower on data and political focus

European equity markets finished mostly lower, with the euro gaining ground on the U.S. dollar. The markets awaited the expected tax reform votes in the U.S., which were expected to begin today, as well as uncertainty regarding how the next stage of the U.K. Brexit negotiations may go as they will focus on the highly-contentious topic of trade. The British pound traded lower compared to the greenback to provide some support to the U.K. markets.

The U.K. FTSE 100 Index ticked 0.1% higher, while France’s CAC-40 Index and Germany’s DAX Index decreased 0.7%, Italy’s FTSE MIB Index declined 0.5%, Switzerland’s Swiss Market Index traded 0.6% lower, and Spain’s IBEX 35 Index dipped 0.1%.

Stocks in Asia finished mixed with fresh record highs in the U.S. on tax reform optimism lending support, while Japanese equities reversed to the downside to finish lower, as the yen was little changed and construction companies saw pressure amid a bid-rigging investigation. South Korean securities dipped, with automakers lower amid uncertainty regarding U.S. trade relations, but shares traded in mainland China and Hong Kong moved higher. Materials issues helped lift Australian stocks, while markets in India gained ground, as traders continued to cheer state election results that bolstered Prime Minister Modi’s party.