What I’m Watching This Week – 26 December 2017

The Markets (as of market close December 22, 2017)

Last week saw moderate trading and lukewarm gains. The small caps of the Russell 2000 outperformed the Dow and S&P 500, while the Global Dow posted the highest gains last week. Rising energy shares helped push the S&P 500, as oil prices continued to expand. The tax code overhaul didn’t seem to impact equities, at least not in the immediate aftermath of the passage of the landmark legislation. Meanwhile, long-term bond prices fell, pushing yields higher. The yield on 10-year Treasuries eclipsed its 2016 year-end closing yield heading into the last week of 2017.

The price of crude oil (WTI) climbed to $58.35 per barrel last Friday, up from the prior week’s closing price of $57.63 per barrel. The price of gold (COMEX) rose to $1,279.10 by early Friday evening, ahead of the prior week’s price of $1,258.20. The national average retail regular gasoline price decreased for the fourth week in a row to $2.450 per gallon on December 18, 2017, $0.035 lower than the prior week’s price but $0.186 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/22 Weekly Change YTD Change
DJIA 19762.60 24651.74 24754.06 0.42% 25.26%
Nasdaq 5383.12 6936.58 6959.96 0.34% 29.29%
S&P 500 2238.83 2675.81 2683.34 0.28% 19.85%
Russell 2000 1357.13 1530.42 1542.93 0.82% 13.61%
Global Dow 2528.21 3041.15 3078.46 1.23% 21.76%
Fed. Funds target rate 0.50%-0.75% 1.25%-1.50% 1.25%-1.50% 25 bps 75 bps
10-year Treasuries 2.44% 2.35% 2.48% 13 bps 4 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • According to the Bureau of Economic Analysis, the gross domestic product for the third quarter grew at an annual rate of 3.2%. The second-quarter GDP increased 3.1%. Gross domestic income — the sum of incomes earned and costs incurred in the production of GDP — increased 2.0% in the third quarter, compared with an increase of 2.3% in the second. The increase in the third-quarter GDP reflected growth in consumer spending, private inventory investment, nonresidential (commercial/business) fixed investment, exports, and government spending. Negatives in the report reflected decreases in residential fixed investment and imports. Also noteworthy, corporate profits increased $90.2 billion in the third quarter compared with an increase of $14.4 billion in the second quarter.
  • Consumer income and spending increased in November, according to the latest report from the Bureau of Economic Analysis. Personal (pre-tax) income increased $54.0 billion, or 0.3%; disposable (after-tax) personal income increased $50.9 billion, or 0.4%; and personal consumption expenditures (consumer spending) increased $87.1 billion, or 0.6%. Core personal consumption expenditures (excluding the volatile food and energy components) gained only 0.1% in November. Core PCE is an inflation indicator closely followed by the Fed. Personal saving, as a percentage of disposable personal income, increased 2.9% in November.
  • New residential construction (all housing types) slowed in November, according to the latest report from the Census Bureau. Building permits, an indicator of future construction, fell 1.4% compared to October, although applications for single-family homes increased 1.4%. Home completions dropped 6.1% in November from the prior month (single-family completions declined 4.6%). While permits and home completions fell, the number of new home construction starts increased by 3.3% in November, led by building starts for single-family homes, which climbed 5.3%.
  • Sales of new single-family homes soared in November, increasing 17.5% above the revised October rate. November’s new home sales are 26.6% above the November 2016 estimate. The median sales price of new houses sold in November 2017 was $318,700 ($319,600 in October). The average sales price was $377,100 ($394,700 in October). The seasonally adjusted estimate of new houses for sale at the end of November was 283,000. This represents a supply of 4.6 months at the current sales rate.
  • According to the National Association of Realtors®, sales of existing homes in November jumped 5.6% over October’s sales pace. Total sales, which include single-family homes, townhomes, condominiums, and co-ops, are 3.8% higher than a year ago, and haven’t been this high since the 6.42 million annual sales pace of December 2006. The median existing-home price for all housing types in November was $248,000, up 5.8% from November 2016 ($234,400). November’s price increase marks the 69th straight month of year-over-year gains. Total housing inventory at the end of November dropped 7.2% to 1.67 million existing homes available for sale (9.7% lower than a year ago), and has fallen year-over-year for 30 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace, which is down from 4.0 months a year ago. The lack of inventory could slow sales down in December.
  • Demand for long-lasting manufactured goods increased in November — a good sign for manufacturers. New orders for durable goods increased $3.1 billion, or 1.3%, in November over the prior month. This increase, up 3 of the last 4 months, followed a 0.4% October decrease. Shipments of manufactured durable goods in November, up 6 of the last 7 months, increased $2.4 billion, or 1.0%, to $244.5 billion. This followed a 0.5% October increase. Unfilled orders for manufactured durable goods in November, up 3 consecutive months, increased $1.1 billion, or 0.1%, to $1,137.0 billion. Inventories of manufactured durable goods in November, up 16 of the last 17 months, increased $0.9 billion, or 0.2%, to $405.2 billion.
  • In the week ended December 15, the advance figure for initial claims for unemployment insurance was 245,000, an increase of 20,000 from the previous week’s level. The advance insured unemployment rate ticked up to 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended December 9 was 1,932,000, an increase of 43,000 from the previous week’s level, which was revised up 3,000.

Eye on the Week Ahead

Typically, the week between Christmas and New Year’s Day does not provide much in terms of economic reports or stock market movement. However, this week does offer an opportunity to reflect on 2017 in general, and the stock market in particular, which has outpaced its 2016 performance.