Market Commentary, 11/22/17
Stock Markets: The Dow closed down for the second week in a row, off .27%, the NASDAQ was up .47% and the S&P 500 closed the week flat.
Volatility Perks Up: Despite the market being flat overall last week, there were three big daily moves, as the Dow fell 138 points Wednesday, gained 187 Thursday, and dropped 100 on Friday. The CBOW Volatility Index rose to its highest level in three months, though well below its historic average.
Fed Nominee: Janet Yellen has announced she will resign her position on the Fed’s Board of Governors when Jerome Powell is sworn in as the Fed Chair in February. This will allow President Trump to shape the Fed by filling five of the seven positions by early 2018. The two appointees nominated thus far appear to be pro-business, bank-friendly, and cautious on raising interest rates, which bodes well for business and stock market growth.
Tax Movement: Thursday’s passage of the Tax Cuts and Jobs Act (TCJA) by the House provided a positive catalyst for stocks, and the Dow gained 187 points. The package cleared the House on a 227-205 vote, moving the debate to the Senate, which is considering its own tax measure.
The largest concern voiced by dissenting Senate Republicans is the bill’s effect on the deficit. However, including the repeal of the Obamacare Mandate in the bill is expected to save billions over the next ten years and should help calm these concerns. The Republicans own 52 of the 100 seats and need 50 votes for the bill to proceed. The bill is moving much more quickly than normal and Republicans are under intense pressure to get legislation to President Trump’s desk by Christmas, especially after failing in their attempt to dismantle the Affordable Care Act this year.
Inflation Watch: Although US manufacturers and other businesses are experiencing rising inflation, consumers aren’t seeing price pressures to the same degree. US wholesale prices rose in October at an annualized rate of 2.8%, the fastest in more than five years. A separate report on consumer prices showed a more modest 2.0% rise. The significance being that the Fed only looks to raise rates when consumer inflation is low.
Shopping Season: US retail sales rose in October and were stronger than initially reported in September, which could bode well for retailers heading into the holiday shopping season. Retailers historically drive the stock market in the week leading up to Black Friday and in the days thereafter. With the S&P 500 retail stocks reporting returns of 5% versus the S&P 500’s average return of 3% during that period.
Summary: The economy continues to show strength, following the 2nd quarter GDP growth of 3.1% with GDP growth of 3% in the 3rd quarter, despite hurricanes that battered the United States during the quarter. This is the first back to back quarters of 3% growth since 2014. This GDP growth is due to strong consumer confidence, which has spurred spending.
While the last two weeks have been pretty flat, the market surged yesterday with the Dow (23,590.83) and the S&P 500 (2,599.03) closing at all-time highs. We expect the momentum of the bull market to continue through the year-end, with the Dow reaching 24,000 before Christmas.
Jeremiah Patterson, CFP®
Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.
Source: WE Sherman & Co., LLC and John Hancock