Despite losing a little ground on Friday to start December, the Dow Jones Industrial Average had its best week of the year last week, shooting past 24000 for the first time as the Senate passed its version of tax reform.
The Dow ended the week at 24232, up 3% for the week. The S&P 500 gained about half that, up 1.6%, while NASDAQ ended with a 0.6% loss as investors took profits on tech stocks. Year to date, the Dow is up more than 22% in price after gaining another 3.8% in November. The S&P has gained 18% following November’s 2.8% rise; both indexes are up eight straight months. NASDAQ is still the market leader, up more than 27% following last month’s 2.2% increase; the index has not had a down month since June. The Senate tax bill, which would roll back corporate tax rates to 20% from 35%, now needs to be reconciled with the already-passed House bill and, assuming it then passes both chambers, gets sent to President Trump for his signature. Outside the U.S., Japanese stocks rose for the second week in a row after having their nine-week winning streak snapped the prior week; the Nikkei 225 rose 3.2% in November and is up more than 19% so far this year in local currency terms. European stocks gave back their prior week’s gains; the Stoxx Europe 600 lost 0.7%, its third loss in the past four weeks.
Both the incoming and outgoing heads of the Federal Reserve said the central bank is likely to raise interest rates at its next meeting. At his confirmation hearing before the Senate Banking Committee on Tuesday, Jerome Powell, the president’s nominee to chair the Fed, said the case for raising the federal funds rate at the December 12-13 meeting “is coming together,” adding, “I think now the economy is strong, unemployment is low, growth is strong—in fact, it appears to have picked up—so it is time for us to be normalizing interest rates and the size of the balance sheet.” The next day the current chair, Janet Yellen, in her final Congressional testimony, said the Fed would continue gradually increasing rates as the economy improves.
Indeed, last week’s reports continued to show the U.S. economy kicking into higher gear. Third quarter GDP growth was revised upward to an annual rate of 3.3%, up from the 3.0% rate originally reported and Q2’s 3.1% level. That’s the strongest quarterly growth rate in three years. Not surprisingly, then, the Conference Board’s consumer confidence index jumped more than three points in November to 129.5, a new 17-year high. Consumer spending rose 0.3% in October while personal incomes climbed 0.4%. The core personal consumption expenditures index, the Fed’s main barometer of inflation, rose 0.2% for the month and 1.4% on an annual basis. The Institute for Supply Management’s manufacturing index fell a half-point in November but remained strong at 58.2. Construction spending for October jumped 1.4%, much better than expected.
Housing sector numbers were strong. Sales of newly-built homes jumped 6.2% in October to an annual rate of 685,000. The National Association of Realtors’ pending home sales index rose a better-than-expected 3.5% to 109.3, although that was still 0.6% below the year-earlier level. The “solid increase in contract signings were still not enough to keep activity from declining on an annual basis for the sixth time in seven months,” said Lawrence Yun, the group’s chief economist. Rising home prices due to a low inventory of homes for sale remain the culprit. The S&P CoreLogic Case-Shiller national home price index rose 6.2% in September over a year earlier, the fastest annual rate since June 2014.
Reports/dates/facts/links worth paying attention to over the next week:
1. December 4: Factory orders for October.
2. December 5: Institute for Supply Management non-manufacturing composite index for November.
3. December 6: ADP national employment report for November.
4. December 7: Weekly unemployment claims
5. December 8: Employment situation for November; University of Michigan consumer sentiment index for December, first reading.