Stocks registered their eighth straight advance last week, this time taking bonds along for the ride.
NASDAQ continued to lead the market higher, rising 1% for the week, with most of the gain coming on Friday after Apple reported its best quarterly growth in two years. The Dow was up 0.4% for the week while the S&P 500 rose 0.3%. Small cap stocks, as measured by the Russell 2000 index, fell for the third week in the past four, falling 0.9%. But bonds were higher for the first time in three weeks, with the yield on the benchmark 10-year Treasury note falling nine basis points to 2.33%. Outside the U.S., Japanese stocks remained hot, as the Nikkei 225 rose another 2.4%; the index is up 17% since September 8. European stocks and bonds were both up for the second straight week. Oil prices continued to move higher, with U.S. crude rising more than 3% to close the week at $55.64, its highest level since early February.
The tax proposal unveiled by Congressional Republicans last week is expected to be positive for both stocks and bonds. The measure calls for lowering the corporate tax rate to 20% from 35%, which should boost profits and business spending. At the same time, the plan is not expected to increase federal budget deficits as much as earlier feared, as the proposal calls for limitations on such items as mortgage interest deductibility. The tough part will be getting the measure through Congress.
The Federal Reserve kept interest rates unchanged at its meeting last week, but the news was overshadowed by President Trump nominating Fed Governor Jerome Powell to be the next central bank chief. Trump went against nearly 40 years of precedent by choosing not to renominate the current chief, Janet Yellen, whose term ends in February. Powell, a member of the Fed since 2012, has been a Yellen ally in keeping rates low, so his appointment, assuming he’s confirmed by the Senate, is not expected to have a major impact on the financial markets, although he is expected to be more flexible on financial regulation, which could encourage banks to make more loans. There are still several vacant Fed board seats, including the vice chair’s, so Trump has a huge opportunity to put his personal stamp on the central bank for years to come. The Fed’s next meeting, its last for this year, is scheduled for December 12-13, at which it is expected to raise interest rates by another 25 basis points.
The week’s economic reports provided more evidence of a consistent uptrend in growth. Friday’s jobs report for October said nonfarm payrolls rebounded by 261,000, less than expected but far ahead of September’s upwardly revised 18,000 gain, originally reported as a hurricane-impacted 33,000 decline. The unemployment rate fell to 4.1%, its lowest level in 17 years and down from 4.8% at the start of this year. The Conference Board’s consumer confidence index jumped more than five points in October to 125.9, its highest level in 17 years. Consumer spending for September rose an even 1%, the biggest monthly gain in eight years, as personal incomes rose 0.4%. The Institute for Supply Management’s purchasing managers’ indexes both remained strong last month: the non-manufacturing gauge, which covers most of the economy, rose slightly to 60.1, a new 12-year high, while the manufacturing index eased two points to 58.7 after hitting a 13-year high in September. In separate reports from the government, September factory orders climbed 1.4% while construction spending rose 0.3%.
Reports/dates/facts/links worth paying attention to over the next week:
1. November 7: Consumer credit for September.
2. November 9: Weekly unemployment claims.
3. November 10: University of Michigan consumer sentiment index for November, first reading.