Market Update: Friday, December 22, 2017

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Market Recap

  • Major indexes sold off into the close, but clung to modest gains. S&P 500 Index +0.2%, Dow +0.2%, Nasdaq +0.1%, Russell 2000 +0.5%.
  • Energy led the sector field for a second session on tax-reform related optimism; rate-sensitive stocks again lagged.
  • Treasury yields lower at the ends of the curve. 10-yr. note -1 basis point (-0.01%) to 2.48%; 30-yr. bond -4 basis points (-0.04%) to 2.84%.
  • Positive breadth on NYSE (1.0:1); negative breadth on Nasdaq (1.0:1) with technology stocks falling.
  • Commodities: WTI crude oil advanced again (+0.9% to $58.07/bbl.; gold +0.4% to $1269/oz.; industrial metals also gained.
  • Economic data: Third revision of Q3 gross domestic product (GDP) slightly lower at 3.2%, initial jobless claims up but still low.

Overnight & This Morning

  • Equities slightly lower ahead of Christmas holiday.
  • European stocks trending lower midday. Spanish stocks getting battered with prelim indicators showing Separatist (pro-independence) party retaining slight majority after yesterday’s election.
  • Asia mostly higher. Following U.S. trend with energy, banks leading. Oil pulled back overnight, but broader commodity gains underpinned buying. Shanghai Composite -0.1%, Hang Seng +0.7%, Nikkei +0.2%.
  • Treasuries firm with 10-yr. note at 2.48%.
  • Commodities: Overnight weakness in oil continuing (-0.6% to ~$58/bbl.), gold +0.3% to ~$1274/oz., industrial metals gaining.
  • Economic data: building permits topped (1,303k vs. 1,298k), durable goods weak (+1.3% vs. +2.0%), personal consumption beat (+0.64% vs. +0.40%), personal income below (+0.3% vs. +0.4%).

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Key Insights

Congress avoids a shutdown. Congress passed a stopgap spending bill late last night, allowing the government to continue to operate past its previous December 22 deadline, and avoid a holiday season shutdown. The measure finances the government through January 19, which gives both sides more time to negotiate a longer-term deal. As we outlined in a recent blog, government shutdowns have historically been a non-event for markets. However, that likely won’t stop the ongoing conversations from generating headlines, especially as the next deadline approaches.

Macro Notes

Global rates jump, but what does that mean? The 10-year Treasury yield had been trading within a historically tight range since late October, but that all changed on December 19 as a confluence of events–some international and some domestic–helped move rates higher globally. Today on the LPL Research blog we look at the key drivers and potential implications.

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Friday

Personal Income & Spending (Nov)

Durable Goods Orders (Nov)

Cap Goods Shipments & Orders (Nov)

Core PCE (Nov)

New Home Sales (Nov)

University of Mich. Sentiment (Dec)

Kansas City Fed Manufacturing Index (Dec)

UK: GDP (Q3)

Germany: Consumer Confidence (Jan)

France: PPI (Nov)

France: GDP (Q3)

Italy: Consumer Confidence (Dec)

UK: Current Account Balance (Q3)

Italy: Industrial Orders (Oct)

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