Markets Extend Yesterday’s Gains…..

U.S. equities finished higher to extend yesterday’s gains, after a better-than-expected Consumer Confidence report showed increasing optimism. Despite the improved outlook, investors continued to grapple with the uncertainties surrounding the omicron variant and its economic impact. President Biden spoke on COVID yesterday afternoon, announcing plans to distribute free at-home COVID testing kits and dispatch 1,000 members of the military to support hospitals, while avoiding any mention of lockdowns. In other economic news, existing home sales rose for the third consecutive month, albeit at a smaller-than-expected pace, Q3 GDP was revised slightly higher and mortgage applications declined. On the equity front, Pfizer’s Paxlovid oral pill was granted an emergency use authorization by the U.S. Food and Drug Administration (FDA) for treatment of COVID-19 disease in high-risk adults and pediatric patients, CarMax posted upbeat quarterly results on record auto sales, while BlackBerry broke even for the quarter, but disappointed the Street with its guidance. Treasuries were mixed, and the U.S. dollar dipped, while crude oil prices were higher, and gold advanced. Europe finished broadly higher and Asia mostly advanced.

The Dow Jones Industrial Average increased 261 points (0.7%) to 35,754, the S&P 500 Index rose 47 points (1.0%) to 4,697, and the Nasdaq Composite gained 181 points (1.2%) to 15,522. In lighter volume, 3.2 billion shares of NYSE-listed stocks were traded, and 4.0 billion shares changed hands on the Nasdaq. WTI crude oil moved $1.64 higher to $72.76 per barrel. Elsewhere, the gold spot price gained $16.30 to $1,805.00 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 96.04.

The Conference Board’s Consumer Confidence Index rose to 115.8 in December from November’s upwardly-revised 111.9 level, and versus the Bloomberg estimate calling for a reading of 111.0. The overall index got a boost from the Expectations Index of business conditions for the next six months portion of the index, which jumped to 96.9 from November’s 90.2 level, while the Present Situation Index portion of the survey was nearly unchanged from the previous month. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—fell to 42.6 from the 44.7 level posted in November.

The Conference Board noted that, “Consumer confidence improved further in December, following a very modest gain in November. The Present Situation Index dipped slightly but remains very high, suggesting the economy has maintained its momentum in the final month of 2021. Expectations about short-term growth prospects improved, setting the stage for continued growth in early 2022. The proportion of consumers planning to purchase homes, automobiles, major appliances, and vacations over the next six months all increased.”

Existing home sales increased 1.9% month-over-month (m/m) in November to an annual rate of 6.46 million units, versus the Bloomberg expectation of 6.53 million units, after October’s unrevised 6.34 million rate. Existing home sales were higher in three of the four major U.S. regions, while the fourth held steady. Each region witnessed a sales decline year-over-year (y/y). Sales of single-family homes were up m/m but flat y/y, while purchases of condominiums and co-ops also increased m/m and were unchanged from the prior year. The median existing home price was up 13.1% from a year ago to $353,900, marking the 117th straight month of y/y gains. Unsold inventory was at a 2.1-months pace at the current sales rate, down from the from the 2.4-months pace a year earlier. Existing home sales reflect contract closings instead of signings and account for a large majority of the home sales market.

National Association of Realtors Chief Economist Lawrence Yun said, “Determined buyers were able to land housing before mortgage rates rise further in the coming months,” adding that “Locking in a constant and firm mortgage payment motivated many consumers who grew weary of escalating rents over the last year. Mortgage rates are projected to jump in 2022, however, I don’t expect the imminent increase to be overly dramatic.”

The final look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 2.3%, compared to forecasts calling for it to remain at the 2.1% growth rate posted in the second release. Q2’s figure was unadjusted at a 6.7% increase. Personal consumption was revised to a 2.0% rise for Q3 from the previous estimate of a 1.7% gain and versus expectations to be unrevised. Q2 consumption was unadjusted at a 12.0% gain.

On inflation, the GDP Price Index was revised to a 6.0% gain versus estimates calling for it to remain at the prior 5.9% increase, while the core PCE Index, which excludes food and energy, was also upwardly adjusted to a 4.6% advance from the previous 4.5% rise, where it was expected to remain.

The MBA Mortgage Application Index fell 0.6% last week, following the prior week’s drop of 4.0%. The decline came as a 2.2% rise for the Refinance Index was more than offset by a 3.3% decrease for the Purchase Index. The average 30-year mortgage rate ticked 3 basis points (bps) lower to 3.27%.

Treasuries were mixed, as the yield on the 2-year note increased 1 bp to 0.67%, while the yield on the 10-year note dipped 3 bps to 1.46%, and the 30-year bond rate was down 4 bps at 1.85%.

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