Market Update: Friday, December 15, 2017

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Market Recap

  • Stocks finished broadly lower as last-minute tax reform complications surfaced. S&P 500 Index -0.4%, Dow -0.3%, Nasdaq -0.3%.
  • Consumer discretionary the lone positive sector, helped by M&A news in the media space; materials, healthcare lagged.
  • Market breadth negative on NYSE (1.9:1), Nasdaq (2.3:1), volume ~96% of 30-day average.
  • Treasury yields climbed slightly; 10-yr. note yield +1 basis point (+0.01%) to 2.35%.
  • Commodities: WTI crude oil regained some of week’s losses (+1.0% to $57.15/bbl.), COMEX gold +0.6% to $1255/oz., industrial metals broadly higher.
  • Economic data: Retail sales nicely above expectations (+0.8% vs. consensus +0.3%), weekly initial jobless claims better than expected.

Overnight & This Morning

  • U.S. stocks opened higher; bouncing back from the worst day in a month yesterday.
  • European markets lower across the board. News is light, but Brexit headlines have leaders approving the second phase of talks. STOXX Europe 600 -0.3%, DAX -0.2%.
  • Asian markets finished down. Late-week profit taking cited as participants digest recent central bank decisions and U.S. tax reform. Nikkei -0.6%, Shanghai Composite -0.8%, Hang Seng -1.1%.
  • Treasuries are flattish: (10-year yield at 2.35%), U.S. dollar slipping.
  • Commodities mainly higher on dollar drop. Crude oil +0.3% to $57.22/bbl, gold +0.3% to $1260/oz., base metals all higher.
  • Today’s economic calendar includes December Empire Manufacturing (18 vs. 19.4 prior), November Industrial Production (+0.2% from month prior).

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Key Insights

  • Tax deal update. The GOP is preparing to release their version of a legislative text that unifies the House and Senate tax reform bills. As the bill races to the finish line, most expect it to ultimately pass. But remember the GOP holds a slim 52-48 margin in the Senate and we are seeing a good deal of last minute jockeying. Senators Lee (R-UT), Flake (R-AZ), Collins (R-ME), and Corker (R-TN) are all still undecided, while Rubio (R-FL) yesterday afternoon said he wouldn’t vote for it unless it expands the child tax credit. Next steps include a likely filing of the bill with the House later today, though a vote likely won’t take place until next week. The Senate isn’t in session today

Macro Notes

  • Worst day in a month. The S&P 500 fell 0.41% yesterday, it’s largest one-day decline in a month. This marks two days in a row it closed near the lows of the day as well. For the month, December is still up 0.2% and the second half of the month has historically fared better. To put the recent market strength in perspective though, the S&P 500 has closed above its 200-day moving average for 371 trading days in a row, one of the longest streaks ever. In fact, this ranks as the seventh longest streak 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.
  • What do corporate profits tell us about the business cycle? Today on the LPL Research blog we look at the relationship between corporate profits and recessions. The roughly four-year historical average between a peak in S&P 500 earnings growth until the start of the next economic recession suggests that the current economic expansion may potentially have quite a bit more runway. At this risk of sounding overly bullish, keep in mind that tax reform could mean that earnings growth may not have peaked yet.
  • Outlook 2018 video. View and share a video presentation of Outlook 2018: Return of the Business Cycle featuring LPL Financial’s Managing Director, Investor and Investment Solutions and Chief Investment Officer Burt White and Chief Investment Strategist John Lynch, as they discuss our views on the economy, fixed income and stock markets, the global environment, and more!

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Click Here for our detailed Weekly Economic Calendar

Friday

  • Empire Manufacturing Index (Dec)
  • Industrial Production & Capacity Utilization (Nov)
  • Manufacturing Production (Nov)
  • Total Net Treasury Int’l Capital Flows (Oct)
  • Eurozone: Trade Balance (Oct)
  • ECB: Nowotny
  • Bank of Russia: Key Rate

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