Market Update: Wednesday November 1, 2017

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Market Recap

  • Major indexes bounced back from Monday losses, but finished off best levels as traders eyed Fed meeting, tax reform bill release, Fed chair nominee announcement later this week. S&P 500 Index +0.1%, Dow +0.1%, Nasdaq +0.4%.
  • Above-average volume on NYSE with advancers outpacing decliners 1.7:1.
  • Consumer staples led sectors on several strong earnings reports; industrials, financials lagged.
  • Treasuries little changed; 10-year note yield -1 basis point (0.01%) to 2.38%.
  • Commodities – WTI crude oil ticked up (+0.5% to $54.43/bbl.) to levels not seen since February, COMEX gold -0.5% to $1272/oz., industrial metals mixed.
  • Consumer Confidence Index hit highest level since Dec. 2000 at 125.9, beating consensus (121.0) and Sept.’s upwardly revised number (120.6 from 119.8).

Overnight & This Morning 

  • S&P 500 continues higher in early trading; follows strong performances in Asia, strengthening commodity prices.
  • European stocks broadly higher. STOXX Europe 600 +0.6%, German DAX +1.3%, French CAC 40 +0.5%.
  • Asian markets showed significant strength backed by strong earnings from Japanese corporates, steadier outlook for Chinese growth reflected by the unchanged Caixin manufacturing PMI. Nikkei +1.9%, Hang Seng +1.2%, KOSPI +1.3%.
  • 10-year Treasury yields largely unchanged, +1 basis point (0.01%) to 2.39%.
  • Oil rally continues. WTI crude prices +1% to $54.9/bbl.; gold +0.4% to $1276/oz.; copper -0.3%, nickel +3%.
  • Today’s economic calendar headlined by FOMC meeting announcement, ISM Manufacturing Index release.

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Key Insights

  • First look at taxes likely tomorrow, as battle lines get drawn. The House Ways and Means Committee is set to provide the first full look at the initial tax reform bill tomorrow, although delays are still possible. “Full look” means at least 700 pages of legislation. The main battle lines will be the “pay-fors.” The bill will likely reduce statutory tax revenue by $5.5 trillion, although some of that will be offset if it stimulates economic growth. Nevertheless, there will need to be offsets (ways to generate tax revenue) to get down to the $1.5 trillion maximum in the reconciliation instructions.
  • Little action expected at the conclusion of today’s Federal Reserve meeting. With the entire conversation about the possibility of a December rate hike, expectations of a rate hike at the conclusion of today’s Federal Reserve (Fed) policy meeting are near 0%. This meeting also doesn’t come with a press conference or new economic or rate path projections. Markets will be looking most closely at the brief assessment of the economy and inflation to gauge the likelihood of a December hike, but the Fed has telegraphed its intentions for a while, and fed fund futures implied likelihood of a December hike is near 95%, so don’t expect much movement.

Macro Notes

  • Another green month. The S&P 500 and Dow both closed higher in October, for their seventh consecutive gains; while the Nasdaq finished higher for the month the fourth straight time. Turning to the S&P 500, the last time we saw a seven-month win streak was in 2013. The last time it got to eight in a row was late 2006/early 2007. Here’s the catch, on a total return basis (so including dividends), the S&P 500 is up an incredible 12 consecutive months for the first time since 1950[1].
    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
  • A closer look at a historical October. The S&P 500 made 11 new highs last month, the most ever for the month of October and the most for any month since 12 in November 2014. The absolute value of the average daily change for the month was only 0.25%, the smallest since October 1968. Additionally, the usually volatile months of September and October ended without any daily declines of at least 1% for the first time since 2006.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • MBA Mortgage Applications (Oct 27)
  • ADP Employment Change (Oct)
  • Wards Vehicle Sales (Oct)
  • Markit Manufacturing PMI (Oct)
  • ISM Manufacturing Index (Oct)
  • Construction Spending (Sept)
  • FOMC Rate Decision
  • UK: Markit UK Manufacturing PMI (Oct)
  • Japan: Vehicle Sales (Oct)
  • Japan: Monetary Base (Oct)

Thursday

  • Challenger Job Cuts (Oct)
  • Weekly Jobless Claims (Oct 28)
  • Nonfarm Production and Unit Labor Costs (Q3)
  • Bostic (Dove)
  • Italy: Markit ADACI Manufacturing PMI (Oct)
  • France: Markit France Manufacturing PMI (Oct)
  • Germany: Markit Germany Manufacturing PMI (Oct)
  • Germany: Unemployment Change (Oct)
  • Eurozone: Markit Eurozone Manufacturing PMI (Oct)
  • Bank of England: Bank Rate
  • Japan: Consumer Confidence (Oct)
  • China: Caixin China Services PMI (Oct)

Friday

  • Change in Nonfarm, Private & Manufacturing Payrolls (Oct)
  • Unemployment Rate (Oct)
  • Average Hourly Earnings (Oct)
  • Average Weekly Hours (Oct)
  • Labor Force Participation & Underemployment Rates (Oct)
  • Trade Balance (Sept)
  • ISM Non-Manufacturing Index (Oct)
  • Factory Orders (Sept)
  • Durable Goods Orders (Sept)
  • Cap Goods Shipments & Orders (Sept)
  • Markit Services PMI (Oct)
  • Kashkari* (Dove)
  • UK: Markit UK Services PMI (Oct)
  • ECB: Coeure

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

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