Stocks Finish the Day and the Week in Strong Fashion…..

U.S. stocks finished the trading day and week with solid gains as equities continued to reel in record highs amid signs of healthy consumer spending in the wake of an upbeat retail sales report. Mixed results from banking giants JPMorgan Chase and Wells Fargo kicked earnings season into high gear, while Treasury yields on the shorter end of the curve added to a recent run, bolstered by a hotter-than-expected core consumer price inflation report. The U.S. dollar was under some pressure and gold and crude oil prices traded higher. Please note that all U.S. markets will be closed on Monday in observance of Martin Luther King, Jr. Day.

The Dow Jones Industrial Average (DJIA) advanced 228 points (0.9%) to 25,803, the S&P 500 Index rose 19 points (0.7%) to 2,786, and the NASDAQ Composite jumped 49 points (0.7%) to 7,261. In moderate volume, 874 million shares were traded on the NYSE and 2.0 billion shares changed hands on the NASDAQ. WTI crude oil increased $0.50 to $64.30 per barrel and wholesale gasoline was $0.02 higher at $1.85 per gallon. Elsewhere, the Bloomberg gold spot price rose $15.94 to $1,338.37 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.0% lower at 90.97. Markets were nicely higher for the week, as the DJIA jumped 2.0%, the S&P 500 Index advanced 1.6% and the NASDAQ Composite ascended 1.7%.

Advance retail sales for December rose 0.4% month-over-month (m/m), compared to the Bloomberg forecast of a 0.5% gain but November’s figure was revised higher to a 0.9% increase. Last month’s sales ex-autos were up by 0.4% m/m, above expectations of a 0.3% gain, and following the favorably revised 1.3% increase seen in the previous month. Sales ex-autos and gas increased 0.4% m/m, matching estimates, and November’s 0.8% gain was revised to a 1.2% rise. The retail sales control group, a figure used to help calculate GDP, grew 0.3%, south of projections of a 0.4% rise, though the prior month’s 0.8% gain was adjusted to a 1.4% increase.

The steady December sales followed the near 6.0% y/y growth in November, which was the strongest since 2012, suggesting the solid labor market and wages trending higher are underpinning the consumer, the largest contributor to U.S. economic expansion. Tax reform could also provide further support for the consumer, likely contributing to the continuation of the bull run in the stock markets. The Consumer Price Index (CPI) ticked 0.1% higher m/m in December, in line with estimates, and November’s 0.4% rise was unrevised. The core rate, which strips out food and energy, was 0.3% higher m/m, compared to expectations of a 0.2% increase, and November’s unrevised 0.1% increase. Y/Y, prices were 2.1% higher for the headline rate, matching forecasts and coming in below November’s unrevised 2.2% rise. The core rate was up 1.8% y/y, versus projections to match November’s unadjusted 1.7% increase.

Treasuries were mostly lower, with the yield on the 2-year note gaining 2 basis points (bps) to 2.00% and the yield on the 10-year note increasing 1 basis point to 2.55%, while the 30-year bond rate declined 1 basis point to 2.86%. Treasury yields mostly extended a recent rally and the U.S. dollar continued to see pressure after a brief recovery to begin the week.

Schwab Center for Financial Research – Market Analysis Group

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