Led by the Dow Jones Industrial Average, which jumped 2% – its biggest weekly gain in over a month – U.S. stocks rose for the seventh straight week.
After closing above 23000 for the first time ever on Wednesday, the Dow continued to move higher the rest of the week, closing the week at another all-time high. The S&P 500, which was up 0.9% for the week, and NASDAQ, which gained 0.4%, also closed Friday at all-time highs. The rally continued despite some jitters about the 30th anniversary of the October 19, 1987, “Black Monday” stock market crash, but that was quickly forgotten after the U.S. Senate approved a blueprint for a federal budget that is seen as paving the way for tax reform legislation later this year without the need for Democrat votes. On Wednesday, Treasury Secretary Steven Mnuchin said he thought stocks would continue to rise, but only if a tax reform bill was passed. “To the extent we get the tax deal done, the stock market will go up higher,” he said. “But there is no question in my mind if we don’t get it done you are going to see a reversal of a significant amount of these gains.”
The Japanese stock market, the hottest equity market recently outside the U.S., continued to move higher, while bonds reverted to their losing ways. The Nikkei 225 rose 1.4%, its sixth straight weekly advance. The index has gained more than 11% since September 8. European stocks were slightly lower, ending a five-week rally. The U.S. Treasury bond market largely erased the previous week’s gains, their first advance in five weeks. The yield on the benchmark 10-year note jumped 10 basis points to end the week at 2.38%, its highest level since early July. Both the budget deal and the tax package are expected to add significantly to federal deficits, putting upward pressure on interest rates.
President Trump has reportedly narrowed to five the field of nominees for the next Federal Reserve chair and expects to name that person in the next two weeks. In addition to the incumbent Janet Yellen, whose term expires in February, the other finalists are Fed governor Jerome Powell, former Fed governor Kevin Warsh, National Economic Council Director Gary Cohn and Stanford University economist John Taylor. “Honestly, I like them all, I do. I have a great respect for all of them,” Trump said. He is expected to announce his choice before he leaves on his first presidential trip to Asia on November 3.
The week’s economic reports were mostly positive. Initial unemployment claims for the week ended October 14 fell to 222,000, down 22,000 from the prior week and the fewest in 44 years. The Fed’s Beige Book covering September and early October described labor markets nationally as “tight,” although employment growth was “modest on balance,” as were wage pressures. The Conference Board’s index of leading indicators fell 0.2% in September, the first decline in three months. Industrial production rebounded by 0.3% after declining by a revised 0.7% in August, when hurricanes disrupted business activity. Housing indicators were mixed. Existing-home sales rose 0.7% last month, the first increase in four months, after falling 1.7% the prior month, also the result of the hurricanes. But housing starts fell 4.7% and building permits slid 4.5%. Nevertheless, the National Association of Home Builders’ housing market index jumped four points in October to 68.
Reports/dates/facts/links worth paying attention to over the next week:
1. October 23: Chicago Fed national activity index for September.
2. October 25: New home sales for September; durable goods orders for September.
3. October 26: Weekly unemployment claims; pending home sales for September.
4. October 27: Third quarter GDP, first estimate; University of Michigan consumer sentiment index for October, second reading.