U.S. equities finished lower, as the enthusiasm of the tax reform bill passing in the House that has taken the markets to record highs was diminished by the drag from technology issues. Treasury yields rallied and the U.S. dollar dipped with single-family home construction eclipsing a more than decade high, while crude oil gained ground and gold was lower.

The Dow Jones Industrial Average (DJIA) fell 37 points (0.2%) to 24,755, the S&P 500 Index was 9 points (0.3%) lower at 2,682, and the NASDAQ Composite lost 31 points (0.4%) to 6,964. In moderate volume, 843 million shares were traded on the NYSE and 2.0 billion shares changed hands on the NASDAQ. WTI crude oil increased $0.34 to $57.56 per barrel and wholesale gasoline added $0.03 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price inched $0.03 lower to $1,262.23 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 93.44.

Housing starts for November rose 3.3% month-over-month (m/m) to an annual pace of 1,297,000 units, above the Bloomberg forecast of a 1,250,000 unit rate. October starts were downwardly revised to an annual pace of 1,256,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, declined 1.4% m/m in November to an annual rate of 1,298,000, after October’s upwardly revised 1,316,000 rate, and above the expected annual pace of 1,270,000 units.

This was the highest level of single-family starts in over a decade and single-family permits have increased for three-straight months, complementing yesterday’s 18-year high in homebuilder sentiment. The data suggests housing could bolster Q4 GDP growth after residential fixed investment had been a negative contributor to GDP in the prior two quarters.

Tomorrow will bring more housing data, with weekly MBA mortgage applications being followed by November existing home sales, the largest portion of the sales market. Contract closings on previously-owned homes are projected to rise 0.9% m/m to an annual rate of 5.53 million units. This would be the highest level since May and move closer to the decade high of 5.70 million units hit in March. However, scarce supply and elevated prices are putting downward pressure on affordability.

Treasuries fell, as the yield on the 2-year note rose 1 basis point (bp) to 1.84%, the yield on the 10-year note gained 7 bps to 2.46%, and the 30-year bond rate advanced 8 bps to 2.82%. Treasury yields rallied and the U.S. dollar extended yesterday’s decline, while the stock markets retreated modestly from record highs, with tax reform continuing to garner attention as the House voted to pass the compromised bill this afternoon, with the Senate to follow either later today or tomorrow.

Schwab Center for Financial Research – Market Analysis Group

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