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After The Close - The stock market began a new week on Wall Street with a somewhat mixed performance. At the close of trading, the Dow Jones Industrial Average was ahead roughly 23 points; the broader S&P 500 Index was off nominally; and the technology heavy NASDAQ was lower by 11 points. Market breadth showed a negative bias to the session, as declining issues outnumbered advancers on the NYSE. Further, most of the major equity sectors lost ground today, with pronounced weakness in the energy and basic materials issues. In contrast, the high yielding utility stocks managed to stage a healthy advance.

Meanwhile, traders received just one notable economic report this morning. Specifically, new home sales reached an annualized rate of 685,000 during the month of October, easily surpassing analysts’ expectations. Clearly, the housing market, which is an integral part of the nation’s economy, remains in good shape. Tomorrow, the latest monthly consumer confidence numbers are due to be released.

Elsewhere, few major corporations posted financial reports over the past 24 hours. However, there was some M&A news worth mentioning. Specifically, Meredith Corp. (MDP) has announced that it plans to acquire Time Inc. (TIME). Shares of both companies traded nicely higher in response to the news. In addition, shares of Barracuda Networks (CUDA) surged on news that the technology company will be taken private.

Technically, the stock market continues to make measured progress. In the weeks ahead, traders will likely be looking to the political arena, as the Administration works to advance its tax reform plan. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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12:00 PM EST - The major U.S equity indexes started the session in positive territory but have weakened in the last hour. Overall, it has been a mixed to slightly lower session of trading on Wall Street. In recent days, the bulls have been emboldened by hopes of possible corporate and individual tax cuts by the time Congress breaks for the Christmas holiday (the former is what Wall Street is giddy about, as it would possibly lower the corporate tax rate from 35% to 20%) and encouraging data on the U.S. economy (more below). But today, we are seeing some selective profit taking as we approach the noon hour on the East Coast.  The Dow Jones Industrial Average is still in positive territory, but the gains have been pared, and the NASDAQ Composite and the S&P 500 Index recently fell into the red.

In general, market breadth on both the New York Stock Exchange and the NASDAQ slightly favors the bears. A similar picture is being painted by the 10-major equity groups, as there are now more down than up arrows, with the moves to the down side more pronounced. The commodities groups (i.e., energy and basic materials) are under the heaviest selling pressure. Likewise, the broader small-cap sector is weaker today, with the Russell 2000 in negative territory for much of the first half. This may suggest that we could be in store for some continued selective profit taking during the second half of the session.

As noted above, we received another encouraging report on the economy this morning. Specifically, the Commerce Department reported that sales of new single-family homes came in at a seasonally adjusted annual rate of 685,000 in October, which was up 6.2% sequentially and 18.7% above the prior-year figure. The October tally was the highest reading in 10 years, as demand is looking strong across the country. And when combined with the continued short supply of homes on the market (the current month’s supply is 4.9 months, which is below the historical norm of six months) and still attractive lending rates, home prices continue to rise. The housing data are another sign that the U.S. economy is strengthening. It also kicks off a very busy week for the business beat, with reports due on consumer confidence, third-quarter GDP, manufacturing activity, and personal income and spending. The confidence reading and personal income data, along with the latest Beige Book summation of economic conditions from the Fed on Wednesday afternoon, will likely be highly scrutinized for clues as to how the consumer is feeling during the ongoing holiday shopping season, an important stretch for the retailing industry.

Looking ahead to the second half of the trading day, market fundamentals appear to be in favor of the bears. However, given the recent strength and resiliency displayed by the bulls and the fluid situation on Capitol Hill with regard to tax reform, we would still not rule out the bulls being heard from again at some point before today’s closing bell rings. But as it stands right now, it may just be the case of some selective profit taking after last week’s gains. Stay tuned. – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
 

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Before The Bell - The holiday-abbreviated four-day stretch of trading last week on Wall Street was a good one for those long equities. The primary catalyst behind the buying was hope that the Republican-led Congress will pass tax-reform legislation that will go to President Trump to be signed into law before Congress breaks for the Christmas and New Year’s holidays. The tax proposals that were crafted by both the House of Representatives and the Senate call for the corporate-tax rate to be lowered to 20%, which the investment community thinks would be a boon for both Corporate America and Wall Street. Hence, the buying we saw last week.

In addition to the proposed tax cuts, the bulls have been emboldened by some encouraging data from the business beat and a rather supportive third-quarter earnings season, the latter of which saw the high majority of S&P 500 companies exceed the consensus expectations. Of note, some of the struggling retailing companies surprised to the upside in the latest period, which was a welcomed sight leading into the all-important holiday shopping season that began in earnest last week with Black Friday. Speaking of the economy, the investment community received a strong report on existing home sales last week, which came on the heels of vibrant housing starts data. The housing and homebuilding markets, which are important cogs in the nation’s economic output, continue to show strength.

For the week, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index rose 0.9%, 1.6%, and 0.9%, respectively. The outperformance by the NASDAQ was driven by a strong showing from the technology stocks, led higher by shares of industry behemoth Apple Inc. (AAPL - Free Apple Stock Report). The move higher was all encompassing, with gains recorded by the small and mid-cap sectors, as well. The story was not much different on Friday either, with all of the aforementioned indexes climbing further, but on light volume, as many traders were off for the Thanksgiving holiday. For the day, the Dow 30, NASDAQ, and S&P 500 Index added 32, 22, and five points, respectively, with the heavy lifting again done by the tech-dominated NASDAQ Composite. Overall, advancing issues led decliners by a comfortable margin on both the Big Board and the NASDAQ, and all of the 10 major equity groups finished in positive territory. Friday’s leadership was provided by the technology, basic materials, and telecommunications sectors.

Turning to the week at hand, the investment community will continue to be focused on Capitol Hill, where the Senate looks to make the necessary changes to its tax proposal to secure enough votes to push it along to the mark-up stage and start the process of combining parts of the House and Senate proposals to create legislation for President Trump to sign into law. Investors should note that the situation remains fluid and it is far from a certainty that Congress will be successful on tax legislation before year end. In the meantime, investors will get a number of important reports on the economy, including the latest data on new home sales (issued today at 10:00 A.M. EST), consumer confidence, third-quarter GDP, personal income and spending, and manufacturing activity. And on Wednesday afternoon, the Federal Reserve will release its latest Beige Book summation of economic conditions. Speaking of the Fed, a number of central bank leaders, including outgoing Fed Chair Janet Yellen are scheduled to speak this week. This may provide some more clues about what the Fed plans to do at its last FOMC meeting of 2017 in mid-December. The overwhelming consensus is that the lead bank will tighten the monetary reins by 25 basis points next month, and the most recent economic data have done nothing to change such thinking.

With less than an hour to go before the commencement of the new trading stateside, the equity futures are indicating a flattish to slightly higher opening for the U.S. stock market. Overseas, we have seen some profit taking after last week’s bullish performance. The main indexes in Asia finished lower overnight, while the major European bourses are in the red as trading moves into the second half of the session on the Continent. Stay tuned.   - William G. Ferguson 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.