Market Update: Monday, November 13, 2017


Market Recap

  • Major equity averages little changed overall; well-received earnings helped offset news that effective date of a lower corporate tax rate may be delayed into 2019. Dow -0.2%, S&P 500 Index -0.1%, Nasdaq flat, Russell 2000 Index flat.
  • Stocks’ eight-week winning streak–longest in four years–ended Friday. Small caps lagged for the week, partly due to tax reform challenges, with Russell 2000 losing 1.3%; Dow -0.5%, S&P 500 -0.2%, Nasdaq -0.2%.
  • Consumer staples topped Friday’s sector leaderboard, while energy lagged as oil prices fell. For the week, defensive sectors REITs, consumer staples led; financials lagged despite higher 10-year Treasury yields on the week (+0.06% to 2.40%).
  • High-yield bonds firmed after several days of weakness, partly attributable to limits on deductibility of interest on corporate debt, pressure on specific issuers in healthcare and telecommunications.
  • WTI crude prices fell 0.8% Friday but ended the week +>2% near $57/bbl. COMEX gold finished Friday -1.0% at $1276/oz. despite weaker U.S. dollar, but ended the week +0.4% while dollar -0.6%.

Overnight & This Morning 

  • Stocks’ slide continues with major U.S. averages down ~0.5% to start the session as tax reform uncertainties linger.
  • European equities lower across the board, focus on corporate news amid little economic data. Spillover from U.S. pessimism on Friday likely contributing. STOXX Europe 600 Index -1.0%, DAX -1.0%, CAC -1.1% midday.
  • Asia closed mostly lower, though China bucked the trend (Shanghai Composite +0.4%, Hang Seng +0.2%) on strength in banks, technology stocks. Nikkei -1.3%.
  • Treasuries moving up modestly, pushing the 10-year yield down 2 basis points to 2.38%.
  • Commodities – Crude oil little changed (+0.1% to $56.81/bbl.), gold edging higher (+0.2% to $1277/oz.), industrial metals all up.


Key Insights

  • Fail, then succeed? Investors will remain focused on how Congress will reconcile the House and Senate tax plans. We probably have not seen the last of the ups and downs for stocks as each controversial element is debated publicly. Remember, big legislation efforts like this typically fail before they succeed. A delay in the effective date for the lower corporate tax as a “pay-for” is possible, but we would be surprised if it was pushed out a year, i.e., 2019, given that it is the centerpiece of the plan. The debate is only getting started, making a New Year’s deadline for passage tough to foresee.

Macro Notes

  • Last “busy week” of earnings season was strong. With over 90% of S&P 500 company earnings results in the books, year-over-year earnings growth is tracking to 8.1%, or over 11% excluding insured losses within the financials sector. Three things that have impressed us most: 1) S&P 500 revenue has come in 1% above estimates, 2) S&P 500 estimates for the next four quarters have risen 0.4% during the season, possibly reflecting some tax policy lift, and 3) the technology sector has produced more than 11% of upside to prior estimates. This week (November 13-18) just 18 S&P 500 companies will report third quarter results.

  • Last week marked the one-year anniversary of President Trump’s Election Day victory. Few would have believed it at the time, but the period since the president was elected has been one of the best ever for U.S. stock markets. The 28.5% rally in the Dow one year after the election ranks 4 out of 31 overall among one-year post-election rallies for U.S. presidents since the inception of the Dow in 1896. Gains can be attributed to a number of factors, some policy related and some not. In our latest Weekly Market Commentary, due out later today, we reflect on the past year and look ahead to 2018.
  • Third quarter data signals potential rebound in productivity. If the U.S. economy is going to grow at a faster rate than the 2.2% average of the current expansion, improved labor productivity will play a key role. Productivity growth throughout this expansion has been mired in one of its weakest periods since the start of record keeping in 1947. But recent data on the third quarter saw productivity climb 3%, which is the best quarter since the third quarter of 2014 and over double the average rate during the expansion. While productivity can fluctuate quite a bit from quarter to quarter, recent strength in capital equipment orders raises the odds that third quarter strength may indicate that the productivity trend has started to reverse. Stronger productivity not only supports economic growth, it also raises the general standard of living and can reduce the impact of wage growth on businesses’ bottom lines.
  • The week ahead. This week’s economic calendar brings data on inflation (consumer and producer), retail sales, industrial production, and housing starts, as market watchers get more data to assess the impact of hurricane rebuilding efforts on the U.S. economy and look to cement expectations for a December rate hike. Meanwhile, third quarter earnings season winds down. Overseas, the data calendar brings gross domestic product in Germany, Italy and the Eurozone, as well as Japan.


Click Here for our detailed Weekly Economic Calendar


  • Monthly Budget Statement (Oct)
  • Russia: GDP (Q3)
  • BOJ: Kuroda


  • National Federation of Independent Business Small Business Optimism (Oct)
  • PPI (Oct)
  • Eurozone: GDP (Q3)
  • Germany: GDP (Q3)
  • Germany: CPI (Oct)
  • Italy: GDP (Q3)
  • UK: CPI & PPI (Oct)
  • Eurozone: Industrial Production (Sep)
  • Germany: ZEW Survey (Nov)
  • Eurozone: ZEW Survey (Nov)
  • Italy: CPI (Oct)
  • ECB: Draghi, Yellen, Carney, Kuroda speak in Frankfort
  • Japan: GDP (Q3)
  • Japan: Industrial Production & Capacity Utilization (Sep)


  • CPI & Core CPI (Oct)
  • Empire State Mfg. Report (Nov)
  • Retail Sales (Oct)
  • Business Inventories (Sep)
  • France: CPI (Oct)
  • BOE: Carney


  • Philadelphia Fed Mfg. Report (Nov)
  • Import & Export Price Indexes (Oct)
  • Industrial Production & Capacity Utilization (Oct)
  • Eurozone: CPI (Oct)
  • BOE: Carney


  • Housing Starts & Building Permits (Oct)
  • Canada: CPI (Oct)
  • ECB: Draghi

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