Stocks Head Into Holiday Weekend Lower…..

U.S. equities finished out the week lower on subdued volume ahead of the Christmas holiday weekend, even as President Trump put his signature to the tax reform bill and the government avoided a near-term shutdown, and despite an unexpected jump in new home sales. Treasury yields were flat and the U.S. dollar was modestly higher, while crude oil prices were mixed and gold gained ground.

The Dow Jones Industrial Average (DJIA) declined 28 points (0.1%) to 24,754, the S&P 500 Index was 1 point (0.1%) lower at 2,683, and the NASDAQ Composite lost 5 points (0.1%) to 6,960. In light volume, 597 million shares were traded on the NYSE and 1.5 billion shares changed hands on the NASDAQ. WTI crude oil decreased $0.18 to $58.30 per barrel and wholesale gasoline gained $0.01 to $1.77 per gallon. Elsewhere, the Bloomberg gold spot price moved $7.64 higher to $1,274.24 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.93. Markets were higher for the week, as the DJIA increased 0.4%, while the S&P 500 Index and the NASDAQ Composite advanced 0.3%.

November preliminary durable goods orders were up 1.3% month-over-month (m/m), compared to the Bloomberg estimate of a 2.0% gain, and October’s 0.8% decline was revised to a 0.4% decrease. Ex-transportation, orders dipped 0.1% m/m, versus forecasts of a 0.5% gain and compared to October’s upwardly revised 1.3% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, edged 0.1% lower, versus projections of a 0.5% increase, and following the favorably revised 0.8% rise posted in the month prior.

Personal income rose 0.3% m/m in November, below forecasts to match October’s unrevised 0.4% increase. Personal spending gained 0.6% last month, above expectations of a 0.5% gain, and versus October’s downwardly revised 0.2% rise. The November savings rate as a percentage of disposable income was 2.9%.

New home sales jumped 17.5% m/m in November to an annual rate of 733,000 units—the fastest pace since July 2007—versus forecasts calling for 655,000 units and the downwardly revised 624,000 unit pace in October. The median home price was up 1.2% y/y to $318,700. New home inventory fell to 4.6 months of supply at the current sales pace from 5.4 in October. Sales surged m/m in the West and jumped in the South, while rising solidly in the Northeast and Midwest. New home sales are based on contract signings instead of closings.

The final December University of Michigan Consumer Sentiment Index was revised lower to 95.9, from the preliminary level of 96.8, below forecasts of 97.2. The index is down from November’s level of 98.5. Compared to last month, the expectations component of the survey fell, more than offsetting a modest uptick in the current conditions portion. The 1-year inflation outlook rose to 2.7% from November’s 2.5% rate, and the 5-10 year forecast remained at 2.4%.Treasuries were little changed, with the yield on the 2-year note rising 1 basis point to 1.88%, while the yields on the 10-year note and the 30-year bond were flat at 2.49% and 2.84%, respectively.

Stocks finished slightly higher on the week as Congress passed the most sweeping tax overhaul in decades and the markets appeared to take a breather after finding another gear in the weeks leading up to the passage. Housing data highlighted a heavy dose of economic data that continued to paint a favorable backdrop, with Friday’s jump in new home sales being preceded by housing construction activity topping expectations and existing home sales hitting the fastest pace since December 2006. The U.S. dollar saw some pressure, and Treasury yields rallied on the tax reform optimism and economic data in the wake of the recent flattening of the curve that has been a source of market concern. Tech, healthcare and consumer staples stocks slipped, while the jump in bond yields supported financials but weighed on the real estate and utilities sectors. Commodity issues were the best performers, with energy stocks rallying to lead the way, aided by a rise in crude oil prices, bolstered by U.S. data showing crude stockpiles tumbled to the lowest since October 2015 and more than double what was expected, per Bloomberg. Consumer discretionary stocks gained ground ahead of the last holiday shopping weekend.

Schwab Center for Financial Research – Market Analysis Group

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