One day after racing to Dow 26,000 (only to give back all the gains), the index took a more pedestrian and yet determined route with each move higher, luring more money off the sidelines. Consequently, on Wednesday, the Dow closed at the high of the session. The NASDAQ and the S&P 500 also finished at new all-time high points.
Market Breadth
Interestingly, market breadth wasn’t as bullish as the market. The level of decliners on the New York Stock Exchange and NASDAQ belied the record-breaking move, and more stocks closed at 52-week lows than one could have imagined.
NYSE
- 1920 advancers
- 1,040 decliners
- 183 new highs
- 56 new lows
NASDAQ
- 1,917 advancers
- 1,045 decliners
- 195 new highs
- 36 new lows
Market Party Time
Despite my observations about market breadth, all S&P sectors were higher as several themes played out.
Industrials were led by Boeing (BA), which has become a juggernaut building on last year’s leadership move.
Consumer Discretionary stocks were led by another 2017 winner; Wynn Resorts (WYNN), just like Boeing, is cashing in the chips in Asia.
Housing stocks enjoyed a strong session as prospective buyer traffic came in at its second highest level since July 2005. In addition, citing the new tax law, UBS Group AG (UBS) lifted share price targets on several home builders, including:
- (LEN) Lennar Corporation: $99 from $77
- (DHI) D.R. Horton Inc: $58 from $53
Great news from Dutch chip maker ASML Holding (ASML) put semiconductors in front of a surge in technology stocks.
Also, the merger scuttlebutt sent shares of Juno Therapeutics (JUNO) higher; and now, it has investors looking for the next target in biotech, which helped lift the healthcare sector.
S&P 500 Index | +1.03% |
Consumer Discretionary (XLY) | +0.60% |
Consumer Staples (XLP) | +1.47% |
Energy (XLE) | +1.20% |
Financials (XLF) | +0.89% |
Health Care (XLV) | +1.08% |
Industrials (XLI) | +0.60% |
Materials (XLB) | +0.80% |
Technology (XLK) | +1.43% |
Utilities (XLU) | +0.67% |
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Apple of our Eye
The biggest corporate news came from Apple (AAPL). The company announced that it will plow $350 billion into the U.S. economy within a five-year span:
- $245 billion coming back from overseas
- Create over 20,000 new jobs
- $5 billion into an innovation Fund
The news came on the same day when Bank of America (BAC) said that Apple’s market cap will reach $1.1 trillion. In fact, more analysts are now looking for Apple to be the single biggest contributor in the move to Dow 27,000.
Meanwhile, investors continue to contemplate what could trip up this rally, and some think it’s a potential government shutdown.
If history is a guide, investors should actually root for a shutdown as the last three saw the S&P 500 gains of (37%, 23%, and 32%). The Gross Domestic Product (GDP) only declined once in the 13 years of shutdowns.
History of Government Shutdowns and the Economy | |||
Year | Number/Days | GDP Change | Annual S&P Returns |
1976 | 1/10 | 5.4% | +23.8% |
1977 | 3/28 | 4.6% | -6.9% |
1978 | 1/17 | 5.6% | +6.5% |
1981 | 1/11 | 2.6% | -4.7% |
1982 | 2/4 | -1.9% | +20.4% |
1983 | 1/3 | 4.6% | +22.3% |
1984 | 2/3 | 7.3% | +6.2% |
1986 | 1/1 | 3.5% | +18.5% |
1987 | 1/1 | 3.5% | +5.8% |
1990 | 1/3 | 1.9% | -3.1% |
1995 | 1/5 | 2.7% | +37.2% |
1995 to 1996 | 1/21 | 3.8% | +22.7% |
2013 | 1/16 | 1.7% | +32.2% |
The economy is clicking on all cylinders as measured by the Federal Reserve Beige Book, which cites employment, retail spending, and construction as “robust.” Some pockets of the U.S., including Richmond and Dallas, also used the word “robust” to describe parts of their district’s economy.
Highlights by Federal Reserve District:
Boston
Economic activity expanded at a modest pace as 2017 ended, with the majority of contacts at manufacturing, retail, and software and information technology firms reporting revenue increases even as some saw flat or declining revenue. Employers cited tight labor markets as a constraint on expansion. Respondents' outlooks continued to be positive.
New York
Economic activity continued to expand moderately, while labor markets have remained tight. Input prices have increased at a somewhat faster pace, while selling prices continued to rise modestly. Housing markets and commercial real estate markets have been mixed but generally steady overall.
Philadelphia
Economic activity continued to grow at a modest pace, in particular for manufacturing, nonfinancial services, and tourism. Nonauto retail sales improved to a modest pace as auto sales slipped to a modest decline. The construction and real estate sectors changed little. On balance, employment, wages, and prices continued to grow modestly.
Cleveland
The economy continued to expand at a moderate pace. Labor markets tightened, with wage pressures coming primarily from workers in low- and middle-skills jobs. Retailers reported higher-than-expected revenues for the early part of the holiday shopping season. Homebuilders saw little evidence of a seasonal downturn in the housing market.
Richmond
The regional economy grew at a moderate pace in recent weeks. Robust growth was reported by trucking and tourism firms. Retailers generally reported better-than-expected holiday sales. Meanwhile, commercial real estate activity and commercial lending improved moderately. Labor markets tightened further and wage pressures broadened. Price growth remained modest.
Atlanta
Economic activity improved modestly since the previous report. The labor market remained tight and wage increases were stable. Non-labor input costs picked up slightly. Retailers were optimistic when reporting on holiday sales. Home sales were mixed and prices increased modestly. Commercial real estate contacts continued to indicate improving demand. Manufacturers noted an increase in new orders.
Chicago
Economic activity picked up to a moderate pace. Employment, consumer spending, and manufacturing production increased moderately, construction and real estate activity rose slightly, and business spending was unchanged. Wages increased modestly, prices rose slightly, and financial conditions improved some. Crop and dairy farmers continued to face challenging conditions.
St. Louis
Economic conditions continued to improve at a modest pace. In positive news, retailers' reports of holiday sales were generally upbeat, and real estate activity has picked up somewhat. However, auto dealers continued to report mixed sales results, and agriculture conditions in the District remain weak.
Minneapolis
Ninth District economic activity grew moderately. Although employment levels dipped, hiring demand appeared to remain strong. District manufacturers indicated that a solid 2017 would continue, with upbeat expectations for the year to come. Holiday retail spending was strong, but winter tourism got off to an uneven start. Commercial construction increased; homebuilding was mixed, but residential sales were up.
Kansas City
Economic activity and employment expanded modestly in late November and December. Retail sales increased sharply, and consumer spending remained well above year-ago levels. The manufacturing and energy sectors expanded further, and capital spending plans were positive. A majority of contacts in the services sector reported labor shortages, and strong wage growth was anticipated in the months ahead.
Dallas
Economic activity grew robustly, a pickup in pace from the more moderate expansion seen throughout most of 2017. The manufacturing sector remained a bright spot, although growth accelerated in most other sectors as well. Employment growth picked up, and wage and price pressures remained elevated. Labor shortages persisted, with several reports that difficulty hiring was impeding growth to some extent.
San Francisco
Economic activity in the Twelfth District continued to expand at a moderate pace. Sales of retail goods picked up noticeably, and growth in the consumer and business services sectors remained strong. Conditions in the manufacturing sector remained solid. Activity in residential real estate markets remained robust, while conditions in the commercial sector were strong. Lending activity grew at a modest pace.
Today’s Session
The market is looking to open soft after another juggernaut session. This morning has seen a hodgepodge of data from corporate earnings to economic readings on housing and manufacturing.
Housing starts declined 8.2% to an annualized rate of 11.9 million, weighed down by -11.8% decline in single family home starts. The good news is 2017 saw the best combination of permits, starts and completions since 2007.
The Philly Fed Manufacturing report also missed consensus coming in at headline read of 22.2, the street was looking for 25.0.
Watching oil inventories today, which probably will also influence equities, as another drawdown in crude should be viewed as a plus for the economy.
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