Market Commentary

Financial Markets Commentary For the week of November 27, 2017

Key Market Data

11/17/2017 11/24/2017 One Week Change YTD One Year
S&P 500 Index 2,578.85 2,602.42 +0.91% +18.36% +20.44%
MSCI EAFE Index 1,986.15 2,022.86 +1.85% +23.84% +29.25%
Barclays Capital U.S. Aggregate Bond Index 2,039.59 2,043.39 +0.19% +3.39% +3.65%
10-year Treasury Note Rate 2.344% 2.343% -0.1 basis points -10.2 basis points -0.8 basis points

184 … and counting. That’s how many times the Nasdaq (69), Dow Jones Industrial Average (60) and S&P 500 (55) have now hit new highs during 2017.

The Dow turned the trick last Tuesday, before the turkey and football, and the Nasdaq and S&P 500 followed suit on Black Friday (along with the Russell 2000). The indexes were propelled by the shares of energy and retail companies, but also, as has been the case for most of the year, by tech stocks: Amazon and Facebook set records on Friday, and Alphabet, Apple and Microsoft did so earlier this month. And for all of 2017, the Nasdaq is up 29%, the Dow 22% and the S&P 500 18%.

Black Friday, and beyond

Though the final figures aren’t yet in, it looks as though the holiday season opened up with a bang, retail wise, with sales both online and at brick-and-mortar stores up from the year before despite fewer discounts and promotions. According to Customer Growth Partners, Black Friday sales hit $33 billion, an increase of 4.8% from last year, while the National Retail Federation said sales for November and December could rise by as much as 4% from 2016 to $682 billion.

Oil’s surge

Energy company stocks helped drive the major indexes last week, with United States crude rising to $58.95 a barrel, its highest price since mid-2015. Oil’s recent rebound is the result of lower inventories, disruptions in the Keystone Pipeline because of an oil spill in South Dakota, and the prospect that the Organization of the Petroleum Exporting Countries will extend the production cap due to expire in March when it meets in Vienna this week.

The Fed and inflation

The Federal Reserve released the minutes of its meetings on Oct. 31 and Nov. 1 last week, and, based on the report, investors expect the Fed to move ahead with its third rate hike of the year when it meets in mid-December. That rate increase will come despite concern from some committee members about low inflation and confusion about its cause. The minutes noted that Fed officials were “reasonably confident that the economy and inflation would evolve in coming months such that an additional firming would likely be appropriate in the near term,” but future hikes “would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee’s objective.”

Yellen to depart ahead of schedule

The Fed’s last meeting with Chairwoman Janet Yellen at the helm will be in late January, after which she will be replaced by Governor Jerome Powell, assuming his nomination is approved by Congress, as it’s expected to be. Last week, however, Yellen said that she was going to leave the Fed when her term as chair expires in February, even though she could remain on the Board of Governors until 2024. In announcing her early retirement, Yellen said she was “gratified that the financial system is much stronger than a decade ago,” and is pleased with “the substantial improvement in the economy since the crisis.” She had served as Ben Bernanke’s vice chairwoman beginning in 2010 before succeeding him in 2014. When she leaves, there will be just three governors on the seven-person board.

The DOJ and AT&T go to court

Citing antitrust concerns, the Department of Justice (DOJ) is suing AT&T to stop its $85.4 billion purchase of Time Warner. The DOJ’s Antitrust Regulator Makan Delrahim said, “This merger would greatly harm American consumers,” while AT&T’s Chief Executive Officer Randall Stephenson said of the suit, “It defies logic, and it’s unprecedented.”

No progress in the NAFTA talks

After the fifth round of the North American Free Trade Agreement (NAFTA) talks in Mexico City last week, both Canada and Mexico said that the American approach was going nowhere. U.S. Trade Representative Robert Lighthizer fired back, saying, “thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement,” adding, “I hope our partners will come to the table in a serious way,” at the next session in Washington, D.C., in December.

Germany in flux

Germany, with its leader Chancellor Angela Merkel, is seen as the rock around which the European Union is anchored. However, that may change after Merkel and her Christian Democratic Union broke off negotiations with other parties in an attempt to form a ruling coalition. Her party lost seats in September’s election, and if a coalition can’t be formed, there could be a new round of elections, adding to drama of the Brexit, the secessionist movement in Catalonia, and the rise of far-right parties across Europe. In other news, the National Association of Realtors said that existing home sales were up 2% in October from the month before to an annualized rate of 5.48 million, but down 0.9% from the year before because of low inventory. The median home price, however, increased 5.5% from a year earlier to $247,000. The University of Michigan’s Consumer Sentiment Index reading was 98.5 in November, down from October’s 100.7, which was a 10-year high. And first-time jobless claims for the week ending Nov. 18 fell 13,000 to 239,000; the four-week moving average was up 1,250 to 239,750.

A look ahead

Congress will be back at work this week with the Senate planning to vote on the tax cut package and, assuming it passes, to begin reconciling the House and Senate versions of the plan. In addition, there will be updates on new and pending home sales, the Fed’s Beige Book, wholesale and retail inventories, the S&P CoreLogic Case-Shiller Home Price Index, the Institute of Supply Management’s Manufacturing Index, construction spending and vehicle sales. The government will also issue its second reading for third-quarter growth, expected to come in at 3.2% after the original estimate of 3.0%.