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Week in Review

Week Ending: Friday, November 10, 2017 

Recap & Commentary

For what proved to be an incredibly busy week, markets returns were rather muted. 

The release of the House’s tax plan generated significant headlines about its impact on the broader economy and more specifically, corporations and individuals. However, determining its exact impact is difficult given the likelihood that it will undergo significant changes before becoming law.

President Trump’s nomination of Jerome “Jay” Powell to be the next Fed Chair was taken in stride by the markets.  A Fed governor since 2012, Powell has been supportive of Yellen’s policy of gradually raising rates and is largely expected to maintain the status quo with respect to overall monetary policy.

In another indication that global central banks are moving to end the era of extraordinary monetary stimulus, the Bank of England (BOE) raised interest rates for the first time in a decade.

Unemployment fell to a 17-year low of 4.1% in October.  Nonfarm payrolls added 261k jobs bringing the prior three-month average to 162k/month, a number that will likely keep the Fed on track for raising rates again in December. 

Through Friday 405 companies within the S&P 500 (81%) had reported earnings.  Trends from prior weeks remained largely unchanged with 66% of companies beating top line estimates and 74% beating bottom line estimates. According to FactSet, forecasted earnings growth for the quarter currently stand at 5.9%. Positive earnings growth has been a key underpinning of the market’s 2017 gains.


Economic Bullet Points

Data out of the housing sector was positive. The Case-Shiller Home Price Index rose in the month, lifting home prices 6.1% Y/Y, the largest Y/Y gain since June 2014. Construction Spending was mixed, public and residential spending were solid in the month, while the non-residential sector pulled back.

Factory Sector data was positive in the week, the ISM Mfg. Index was just off of its 13-year high reached in September, but remains elevated, suggesting firmness in the manufacturing sector. Factory Orders rose ahead of expectations, and importantly, both core capital goods orders and shipments rose strongly, a central reading for the business investment component of GDP.

Data outside of the factory sector was mostly positive– the ISM Non-Mfg. Index edged higher in the month from what was already a cycle high, pointing to steady and solid momentum for the bulk of the U.S. economy. The International Trade deficit widened in the month, but fundamentally, while the rise in capital goods imports is a negative for GDP calculations, it is a positive indicator for the U.S. economy. The consumer ended Q3 exceptionally well, Consumer Confidence jumped to a 17-year high, with broad-based gains, but was driven by consumers’ view on the labor market. The Personal Income & Outlays report was mixed, with consumption up strongly, while income gains remained muted.

The October Employment Situation report saw a rebound in jobs, while wages were disappointing. Nonfarm payrolls added 261K jobs in the month, additionally, the prior two months saw 90K in upward revisions. Headline unemployment fell to 4.1%, a low last seen in December 2000.


Of Note

  • Special Prosecutor Robert Mueller filed the first charges as part of his ongoing investigation into Russian interference of the 2016 Presidential election.


Market Indices Week of 11/10

S&P 500                        0.3%

Russell 2000              -0.9%

MSCI EAFE                  0.9%

MSCI EM                       1.4%

Commodities               1.2%

Barclay’s Agg.              0.4%

US Dollar Index            0.1%

10-Yr Yield                   2.34%

Oil ($/bl)                          $56

Gold ($/oz)                   $1,270

The Week Ahead

  • NFIB Small Bus. Optimism
  • Jobless Claims
  • Consumer Sentiment

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