Week in Review
Week Ending: Friday, November 17, 2017
Recap & Commentary
Markets posted mixed returns during a week that saw some limited volatility. Further flattening of the yield curve and significant high yield outflows raised concerns that the bond market might be signaling an impending selloff in equity markets. As measured by the spread between the 2– and 10-Year Treasuries, the yield curve flattened to a level last not seen in over a decade. At the same time, according industry group Lipper, High Yield mutual funds and ETFs posted -$4.4B in net withdrawals for the week ended Nov. 15, the fourth largest weekly outflow on record dating back to 1992.
Congressional efforts at tax reform advanced as the House passed its tax legislation and the Senate Finance Committee approved that chamber’s legislation, sending it to the full Senate for debate. Passage of the bill remains uncertain as one Republican Senator has already voiced opposition and several others appear to have significant reservations. Even if approved in its current form, the House and Senate bills would need to reconcile a number of important differences including the repeal of the individual mandate under the Affordable Care Act, whether or not the individual tax cuts would be temporary or permanent, and the timing of corporate tax cuts.
Over the weekend, German Chancellor Angela Merkel was dealt a blow as efforts to form a coalition government collapsed creating one of Germany’s political crises since the end of WWII. Faced with leading with minority government or holding new elections, Merkel seems to be leaning towards the latter option. And while she has insisted that she will not step down, Germany’s political landscape, long seen as one of the most stable in Europe, suddenly appears to be rather precarious.
Economic Bullet Points
Regional factory sector data remains strong, but saw some welcomed cooling in the month. The Empire State Mfg. Survey came in at 19.4, down from last month’s 8-year high of 30.2. New orders and employment remain the two hot spots in the report. The Philly Fed Business Outlook survey, similarly, moderated slightly but remains exceptionally strong.
Government factory sector data, as indicated by Industrial Production, rose well ahead of expectations in the month. The manufacturing component rose, lifting the Y/Y rate to 2.5%, moderate, but trending in the right direction.
Small businesses, who have been remarkably optimistic this year, tamed their expectations a bit in the month. The Small Business Optimism Index rose less than expected, but still recovered a large part of last month’s hurricane related dip.
Prices saw some welcome upward pressure in the month, both on the producer and consumer side. The Producer Price Index saw a strong gain driven by the services component. Gains in the Consumer Price Index were more modest, core inflation ex. food & energy rose 0.2%, in line with expectations, lifting the Y/Y to 1.8%.
Housing market data surprised to the upside in the month, the Housing Market Index reached its highest level since March. Traffic, which has been a laggard, saw improvement, reaching its best level since May. Housing Starts and permits saw strong gains in the month from both single- and multi-family units.
Jobless Claims rose in the week, but despite the bump higher, data still points to very tight conditions in the labor market.
- Wednesday’s –0.5% decline marked the end of 51 consecutive days in which the S&P 500 failed to close down by –0.5% or more, the longest such streak since 1965.
Market Indices Week of 11/17
S&P 500 -0.1%
Russell 2000 1.2%
MSCI EAFE -0.7%
MSCI EM 0.7%
Barclay’s Agg. 0.2%
US Dollar Index -0.8%
10-Yr Yield 2.37%
Oil ($/bl) $57
Gold ($/oz) $1,284
The Week Ahead
- Existing Home Sales
- Durable Goods Orders
- Consumer Sentiment
- Jobless Claims
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