Market Update: Friday, November 3, 2017

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Market Recap

  • Stocks finished slightly higher, trading in a wide pattern relative to recent months as the Dow bounced from an 80-point drop to an 80-point gain during intra-day trading. S&P 500 Index flat, Dow +0.4%, Nasdaq flat, Russell 2000 +0.3%.
  • Financials and industrials led following the House’s release of the first iteration of tax reform. Telecommunications and consumer discretionary lagged.
  • 10-year Treasuries strengthened; yields declined 3 basis points (0.03%) to 2.35%.
  • Breadth negative on NYSE (1:1), exchange volume above average (123% of 30-day average).
  • Commodities – WTI crude oil exhibited a volatile day closing up +0.9% to $54.7/oz., COMEX gold held near flat at $1276/oz.

Overnight & This Morning 

  • Domestic markets opened near flat as markets continue to process earnings releases, mixed performances abroad, and tax reform impacts.
  • European equities mixed, England’s FTSE 100 a standout (+0.9%); STOXX Europe 600 +0.1%, German DAX 0.4%, Spain’s IBEX -1.1%.
  • Asian markets mixed; Japan’s Nikkei 225 closed for a holiday. Hang Seng +0.3%, Korea KOSPI +0.5%, Shanghai Composite -0.3%.
  • 10-year Treasuries higher; yields moving lower 1 basis point (0.01%) to 2.34%.
  • Commodities – WTI crude oil up to $54.8/bbl., gold flat at $1278/oz. Industrial metals breaking win streak; nickel -0.5%, aluminum -1.7%, copper -1.0%.
  • Today’s economic calendar kicked off with disappointing results from nonfarm payrolls missing expectations (261K vs. 313K)

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Key Insights

  • Tax proposal released, but still just a proposal. Republican leaders released their long-awaited tax reform proposal yesterday. Markets initially pulled back, but stabilized later in the day as more details were digested. Broadly, the reforms were in line with expectations–a corporate tax rate of 20%, fewer individual brackets, and a phase out of the estate tax. Surprises included a slightly higher than expected tax on repatriation of foreign profits (12% for cash), a decrease in the cap on the mortgage interest deduction (from $1 million to $500,000), and no changes to limits on pre-tax 401(k) contributions which had been widely discussed. The lower corporate tax rate is likely to be the most impactful for investors, but it is also important to remember that this proposal remains just that–a proposal. There are likely to be many changes (and the potential for market-moving headlines) as the bill works its way through Congress.

Macro Notes

  • October saw a 261,000 increase in nonfarm payrolls, missing expectations of 313,000, but still a significant bounce from September’s initially reported loss of 33,000 jobs. The previous two months reports were also adjusted upward by a total of 90,000 jobs. August, which saw a 169,000 gain was increased to 208,000, and September, which was initially reported as a 33,000 loss, was adjusted to an 18,000 gain. The unemployment rate ticked down to 4.1% (from 4.2% previously), but the major driver of the move lower was a decrease in the labor participation rate, from 63.1% to 62.7%. Average hourly earnings, which had seen a strong increase in the wake of the hurricanes, was flat month over month versus estimates of a 0.2% gain.The underemployment rate, arguably a bigger factor in today’s economy than the unemployment rate, saw a significant drop from 8.3% in September to 7.9% in October. This number has been trending lower since the financial crisis, but this was the biggest month-over-month drop since January 2014, and it is now at its lowest level since 2006.

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Click Here for our detailed Weekly Economic Calendar

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

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