Gains Garnish Stocks amid Data and Proposed Tax Overhaul.

U.S. stocks gained solid ground with technology and financial shares leading an advance that followed an upbeat business spending report and an optimistic reception for the latest ambitious tax reform proposal. Treasury yields and the U.S. dollar rallied, gold was lower and crude oil prices were mixed. In earnings news, Micron topped the Streets expectations, while Dow member Nike announced quarterly results and a forecast that weighed on the blue chip index.

The Dow Jones Industrial Average (DJIA) increased 56 points (0.3%) to 22,341, the S&P 500 Index was 10 points (0.4%) higher at 2,507, and the NASDAQ Composite rallied 73 points (1.1%) to 6,453. In moderate volume, 834 million shares were traded on the NYSE and 2.0 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.26 to $52.14 per barrel and wholesale gasoline was $0.03 lower at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price lost $10.11 to $1,283.87 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.42.

Business spending jumps again. Treasury yields and dollar rally on Fed expectations.

August preliminary durable goods orders were up 1.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.0% gain, and July’s 6.8% drop was unrevised. Ex-transportation, orders were 0.2% higher m/m, in line with forecasts and versus July’s upwardly revised 0.8% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.9%, well above projections of a 0.3% increase, and following the upwardly revised 1.1% rise posted in the month prior. The volatile component of nondefense aircraft and parts orders jumped to bolster the headline figure, along with a rebound in demand for motor vehicles and parts. Orders for communications equipment jumped and machinery ticked higher, while demand for computers dropped and electrical equipment and appliances was little changed.

The MBA Mortgage Application Index declined 0.5% last week, following the prior week’s 9.7% drop. The decrease came as a 3.5% drop in the Refinance Index more than offset a 2.8% gain for the Purchase Index. The average 30-year mortgage rate rose 7 basis points (bps) to 4.11%.

Pending home sales fell 2.6% m/m in August, versus projections of a 0.5% decline, and following the unrevised 0.8% decrease registered in July. Compared to last year, sales were 3.1% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly fell in August due to inadequate levels of available inventory and the upward pressure it’s putting on prices.

Treasuries were lower, with the yield on the 2-year note rising 2 bps to 1.48%, the yield on the 10-year note gaining 7 bps to 2.30%, and the 30-year bond rate advancing 8 bps to 2.85%.

Treasury yields rallied, with the 10-year rate hitting a two-month high, and the U.S. Dollar Index jumped to levels not seen in over a month. Fiscal policy focus appears to be heating up as the markets began to digest the release of tax-reform proposal details, while expectations of a Fed rate hike in December were bolstered by yesterday’s speech by Federal Reserve Chairwoman Janet Yellen, which seemed to foster a hawkish reaction.

Schwab Center for Financial Research – Market Analysis Group

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