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Market Update

Only Eight Sessions Left in 2017; Can Benchmarks Pace More Historic Gains?

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December 19, 2017

(Tuesday Market Open) Another day, another record? Two major benchmarks opened at fresh peaks again as the days tick down to the end of the year.

With eight trading sessions left in the year, the Dow Jones Industrials ($DJI) is on track to log its best round of record high closings in history, with 70 so far to help account for more than a 5,000-point advance for the index. The Dow has finished in fresh territory in seven of the eight past sessions. Meanwhile, the S&P 500 (SPX) could register its second best year of record highs, with 62 so far, matching the 1964 number. The Nasdaq Composite (COMP) doesn’t have such impressive numbers of closing highs, but has managed to post the biggest percentage gains—at 30%--of the indices so far this year. COMP slipped into negative territory at the open.

What’s been driving this expansion? Certainly, the usual suspects of economic gains and the mostly robust quarterly returns of some to the market’s biggest players, according to market analysts. But in recent sessions, many point to the sweeping tax reform proposal in Congress as a potential provider of market optimism. We’ll all have to wait to see if that pans itself out, assuming the bill gets passed.

House members are scheduled to vote on the bill later today. The votes are expected to fall along party lines, according to the New York Times, which noted it would take 23 Republican “no” votes for the bill to fail and only 13 GOP members voted against the original House version. If it passes, it moves on to the Senate, possibly as early as today. It appeared early on that the Senate could squeak by with enough partisan votes to pass it too, but if it ended in a tie, Vice President Mike Pence would be needed to break the vote. Stay tuned.

In the markets, shares of Jack in the Box (JACK) moved higher by 3.6% early on. The restaurant chain said it was selling its Mexican fast-casual subsidiary Qdoba Restaurants to Apollo Management (APO) for $305 million. Also, investors might be interested in watching for Fedex’s (FDX) results later today. It could be a nice derivative way to look at retail sales: If FDX’s numbers are healthy, retail sales tend to be healthier. There have been a number of published reports—and personal experiences—of some trouble getting all the packages delivered.

November housing starts came in at a seasonally adjusted annual rate of 1.297 million, according to the Commerce Department. That’s 3.3% higher than a revised October pace, and 12.9% higher than a year ago, outpacing Wall Street’s expectations. Permits, a barometer of future activity, inched up 1.4% to a 1.298 million rate.

That news appeared to put pressure on Treasury prices, with the long end of the curve starting to push yields up. Remember, yields move in the opposite direction of prices. The benchmark 10-year note rose to 2.42% in the early going, nearing its 2.45% resistance level. 

Benchmarks

FIGURE 1: A YEAR OF RECORDS.

The three benchmarks have, so far, posted an impressive run with a series of record highs and were on track in the early going to do it again today. While the $DJI (in red and green) has hit 70 fresh highs already this year, the COMP (in blue) has posted the biggest percentage gains while the SPX (in purple) has recorded 62 new peaks as of yesterday. Data sources: CME Group, Standard & Poor’s. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.  

Keep Interest Rates Low: That was the word early today from Minneapolis Federal Reserve Gov. Neel Kashkari in an appearance on CNBC. He said his three votes this year against raising interest rates are because of his concerns about low inflation, low wage growth and troubling bond market signals.

“If inflation continues to be low and we start raising rates prematurely, we could end the expansion on our own,” he said, noting that it could happen with an inversion of the yield curve. “We have the luxury of time to let inflation actually show itself.”

More Records: This one is on the venture capital (VC) side. On a global basis, venture capital investment has hit an all-time record, with more than $148 billion already poured into private companies this year, according to data provider PitchBook. “Massive VC financings are the new normal,” the data group says.

Though the deal counts are falling from 2015 peaks, the sizes of each round are appreciably larger, PitchBook notes. In October alone, eight startups in the U.S. had raised rounds of $500 million or more. U.S. venture investment has hit $81.2 billion, but that still trails the dotcom-era totals from 2000. In terms of VCs raising funds, this year experienced a “noticeable downturn” from last year’s record.

Package Delivery Problems? Retail Metrics said today that could be because of the robust holiday shopping period across all retail channels—something the industry group didn’t expect. “Our store checks this weekend once again found traffic and conversion levels to be up from last year,” according to Ken Perkins, Retail Metrics president.

“We must admit Holiday 2017 at the bricks-and-mortar level has been stronger than we expected,” he said in a note today. “With sharp foot-traffic declines in each of the last three years…we expected a similar rate of decline this year that has simply not materialized. That being said, e-commerce transactions and sales continue to experience double-digit growth and put a strain on shippers.”

Good Trading,
JJ
@TDAJJKinahan

Economic calendar

FIGURE 2: ECONOMIC CALENDAR

Source: Briefing.com

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