After The Close - Fresh off the Senate’s approval of the business-friendly tax reform bill, the major indexes shot higher on Thursday. Though the NASDAQ 100 pared most of its gains in the later hours, and the S&P 500 and Dow Jones Industrial Average also shed some value in the final hour, we think the bulls may be in line for a strong finish to the final five-day week of 2017. The energy, basic materials, and financials sectors were among the best performing groups today, while equities of all sizes enjoyed the rally. Small-cap stocks were particularly strong. This explains the Russell 2000’s more-than nine point increase, as well as the nearly two-to-one ratio of advancing to declining shares.
Regarding the tax bill, the GOP is on the verge of a major legislative win, pending the President’s signature. The corporate taxation rate will lower to 21% under the tenets of the measure, among many other accommodative features. Since last November’s election, the equity markets have stormed to historically high levels on the hopes that the Trump Administration could overhaul the U.S. tax code. Thus, we expect the implementation of this strategy to help spur a strong finish to what has been an all-time year for the major U.S. indexes.
Elsewhere, on the business beat, investors were given a good-to-mixed bag of reports to digest. Whereas the GDP increase and the Conference Board’s reading were perceived as in-line with expectations, the initial jobless claims from last week were modestly disappointing. The market was mostly concerned with the auspicious tax reform news, though, so these factors did little to discourage the bulls. Tomorrow will see the publishing of a number of economic reports, including personal income, durable goods orders, and new home sales.
U.S. crude oil, meanwhile, reached its highest per-barrel valuation in three weeks. The strength was supported by the Forties pipeline shutdown in the North Sea, where it was announced drilling would not resume until early January. This helped the commodity market shake off U.S. output-related softness from earlier in the trading session. Still, with domestic inventory falling last week to a two-year low, there is a cautious optimism that favorable global oil prices will hold up well.
Looking forward, we expect optimism related to tax reform to be somewhat offset by opportunistic profit taking during Friday’s session. This pattern ought to persist during next week’s low-volume, holiday-shortened four-day trading span. Thereafter, a buoyant outlook for Corporate America ought to help keep this bull market intact for the foreseeable future, barring any geopolitical surprises. Stay tuned. - Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
12:15 PM EST - The stock market opened higher this morning, and has managed to extend its early gains. At just past noon in New York, the Dow Jones Industrial Average is ahead 105 points; the broader S&P 500 Index is up nine points; and the NASDAQ is higher by 21 points. There is wide support for equities today, as winners are comfortably ahead of losers on the NYSE. Almost all of the major equity groups are pushing ahead, with impressive gains in the energy and financial issues. In contrast, the utility sector is down sharply, as traders may be moving capital to more exciting areas of the market.
Traders received a large batch of economic news this morning. Specifically, according to the third estimate, the nation’s GDP increased at an annual rate of 3.2% during the third quarter, which was slightly lower than had been anticipated. Initial jobless claims edged up to 245,000 in the week of December 16th, which was a somewhat less favorable reading than had been expected. Finally, the Conference Board’s leading economic indicators index rose 0.4% in November, which was in line with expectations. Tomorrow will be a busy day for economic reports, as well. We will get a look at the latest monthly personal income and spending figures, durable goods orders, and new home sales.
Meanwhile, a handful of corporations posted their financial results over the past 24 hours. Specifically, shares of Bed Bath & Beyond (BBBY) are sinking, as investors were not pleased with the home furnishings retailer’s report. In contrast, shares of The Finish Line (FINL) are moving up after the footwear retailer put out a better-than-expected report. After the market closes today, Dow-component NIKE, Inc. (NKE – Free NIKE Stock Report) will post its numbers.
Technically, the equity market is set to put in a solid finish to what already has been an impressive year. The passage of the Trump Administration’s tax plan may also be spurring on the bulls and could provide a boost needed to drive stocks even higher in early 2018. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The tax bill has finally passed, and with it ended months of political drama in Washington and on Wall Street. In all, the major shift in the nation's tax structure--the largest such modification in some three decades--has been greeted most warmly and with much excitement across the investment community. In fact, much of the 20%, or better, upsurge so far this year in the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ has been the result, according to the pundits, of high expectations from this well-advertised series of legislative changes.
Such underlying excitement aside, the stock market did not celebrate much at the start of trading yesterday, with the key averages moving in and out of the plus column throughout the morning hours. It was not that the Street was disappointed, but rather that it may have been a case of buy the rumor and sell the news, with some overdue profit taking setting in as the day progressed. Still, there was no concerted effort to unload equities, so that the market had a mixed tilt to it as the morning concluded. Overall, Wall Street remains pleased with the often contentious legislative effort that should aid corporate profits in 2018.
Meanwhile, as the morning concluded, we saw the aforementioned large-cap indexes continue to meander in and out of the plus column, with little conviction. Overall, the investment community remains happy. The economy is purring along; corporate earnings are coming in somewhat better than forecast, with welcome assists yesterday from ground carrier FedEx (FDX) and tech stalwart Micron (MU); and the political landscape remains positive for investors, notwithstanding the divisions between the two parties. So, even as the Street labored some as the tax bill passed the finish line, the overall mood was still positive.
Moreover, in news from outside the Beltway, the National Association of Realtors reported that existing home sales jumped by 5.6% in November to a seasonally adjusted annual rate of 5.81 million properties. That compared with sales of 5.50 million in October. Also, inventories of unsold homes dipped 7.2% last month, placing that total nearly 10% a year earlier. In fact, only inadequate levels of homes for sales are keeping the gains in transactions in check. Clearly, the housing market is in great shape as one year ends and another gets ready to begin.
Things did not change much as the afternoon got rolling along, with the Dow and the NASDAQ taking turns weaving in and out of positive territory. As before, earnings played a role, but individually more than from a group standpoint. Thus, even as General Mills (GIS) came in with supportive results, especially on the revenue line, and that stock rallied, some of the other food processing concerns saw their stocks continue to wilt. Otherwise, it was a dull day when investors sought to positions themselves for the end of the year arrival.
At the close, meantime, the market had moved grudgingly lower, with the Dow edging down 28 points; the S&P 500 Index giving back two points; and the NASDAQ easing off three points. Still, the small and mid-cap composites enjoyed nominal success on this tax-affected session. Elsewhere, losing groups held six of the 10 spots on the S&P 500 industry sectors, with the losers again led by the utility category, but basic materials and energy leading the winners. Also, rising and falling stocks were about even on the Big Board on this slightly weaker session, which also saw yields climb to 2.50% on the 10-year Treasury note.
Looking out to the penultimate session of the trading week, we see that stocks were generally lower across Asia overnight, while in Europe, the major bourses are showing early losses, as well. Also of note, oil is off slightly and Treasury yields, which, as noted, surged again yesterday, are showing slightly lower readings so far this morning. Finally, U.S. equity futures are pointing to a mixed open when live trading resumes later today. - Harvey S. Katz, CFA