U.S. stocks were narrowly mixed last week as the House passed its version of tax reform and the market waits to see what the Senate does.
Both the Dow and the S&P 500 fell for the second straight week, if modestly, losing 0.2% and 0.1%, respectively, while NASDAQ managed a 0.5% rise. Small-cap stocks, as measured by the Russell 2000, had their best week in over a month, rising 1.1%. It’s not clear if the year-long “Trump bump” is starting to lose steam or if investors are beginning to doubt whether Congressional Republicans can put together a tax reform package by the end of the year, as promised. The House-passed version differs in several important respects from the one the Senate is working on; while both versions call for a reduction in the corporate income tax to 20%, the House calls for an immediate effective date while the Senate wants to wait until 2019. They also differ in other areas, which will have to be reconciled later. But before that happens, the Senate will have to pass its version, and there is some doubt as to whether Republicans in the upper chamber have enough votes to do that.
European stocks, which had their worst week since August the previous week, dropped again, while Japanese stocks fell for the first time since early September. The Stoxx Europe 600 fell 1.3% after losing 1.9% the prior week. That’s the first time the index has fallen in consecutive weeks since late July. Despite gains on Thursday and Friday, Japan’s Nikkei 225 fell 1.3% for the week, ending a nine-week winning streak, during which it gained nearly 19%. The Shanghai composite lost 1.4%.
Economic reports picked up last week. Retail sales rose 0.2% last month after climbing an upwardly-revised 1.9% in September, which was skewed by post-hurricane spending. Industrial production jumped a better-than-expected 0.9% while the manufacturing component climbed 1.3%, a full percentage point better than forecasts, largely the result of companies playing catch-up after the summer storms. On the down side, the business conditions indexes for both the New York and Philadelphia Federal Reserve Banks came in a little weaker than expected for November although still strong. Housing starts also rebounded from the storms, rising 13.7% last month to an annual rate of 1.29 million, the highest rate in a year, although the number was skewed by a 37% jump in multifamily units; residential starts, the largest category, were up by a more modest 5.3%. Permits rose nearly 6% to 1.297 million. The National Association of Home Builders’ confidence index rose two points to 70, its highest level since March and the second highest since July 2005. On the inflation front, the consumer price index inched up 0.2% last month, an even 2.0% versus a year earlier, 1.8% when food and energy are excluded. Producer prices showed much higher price increases, rising 0.4% for October and 2.8% compared to last year, 2.4% ex food and energy.
Reports/dates/facts/links worth paying attention to over the next week:
1. November 20: Leading economic indicators for October.
2. November 21: Chicago Fed national activity index for October; existing home sales for October.
3. November 22: Weekly unemployment claims; durable goods orders for October; University of Michigan consumer sentiment index for November, second reading; the minutes of the Federal Reserve’s November 1 monetary policy meeting are released at 2:00 P.M.
4. November 23: U.S. markets closed for Thanksgiving.