Stocks continued to set new highs last week. Each of the major U.S. indices closed at new records, as fourth quarter corporate earnings growth continued to climb, and President Trump said the outline of a new tax plan would be coming in a few weeks.
The S&P 500 rose 0.8 percent on the week, leaving it higher on the year by 3.5 percent. The Nasdaq climbed 1.2 percent, pushing its year-to-date gain to 6.5 percent. And the Dow added 1.0 percent, leaving it higher on the year by 2.6 percent. Among the leading sectors on the week were industrials, telecom, and consumer stocks. The fourth quarter earnings season is now two-thirds complete and Factset now expects aggregate growth of 5.0 percent for both earnings and revenue. Calendar year 2017 expectations have slipped slightly. Earnings growth of 10.3 percent is now expected. That is down from 11.7 percent at the start of the quarter.
Oil prices steady
The price of oil was little changed on the week. Brent crude climbed $0.41 to $56.70 a barrel, while WTI added just $0.03 to close at $53.86 a barrel. However, prices firmed at the end of the week, after the International Energy Agency reported that OPEC had followed through in January on its promised production cuts in an effort to eliminate the global supply overhang. It was the first month of the six-month production cut agreement, suggesting at least initial discipline among major producers.
At the same time, Baker Hughes reported that the U.S. oil rig count rose for the fourth consecutive week and is now 80 percent higher than the May 2016 low. However, at 591 active rigs, the total remains well below the peak of 1,600 two years ago. Production has held up better than the rig count would imply, however, as technology has improved, making OPEC’s objective more difficult to achieve.
The XLE energy sector ETF rose 2.1 percent over the final three days of last week, but fell 0.2 percent for the week as a whole. For the year-to-date, the sector is down 2.7 percent, as WTI has traded in a tight range between $52 and $54 a barrel.
Bond yields down
Bond yields drifted lower last week. The ten-year note fell six basis points to close at 2.41 percent, while the two-year slid one basis point to 1.20 percent, as the spread between the two compressed to 121 basis points. At its post-election peak on December 22, the spread reached 136 basis points. Nevertheless, the BKX bank index has edged fractionally higher since that peak, as expectations of reduced regulation and accelerating growth continue to prop up the group.
Changes at the Fed
The promise of regulatory relief got a boost last week as Fed Governor Daniel Tarullo announced his retirement, effective in early spring. With two Fed governor seats already vacant, the president now has an even greater opportunity to influence the makeup of the Fed. And this is in addition to the seat occupied by Chair Yellen, whose term expires in February, 2018.
Busy Week Ahead
Last week’s economic calendar was fairly light, with little to move market sentiment. That is not the case this week, with readings on retail sales, producer and consumer prices, industrial production, housing starts and permits, and leading indicators all scheduled. Fed Chair Yellen is also scheduled to give her semi-annual report on monetary policy to the Senate on Tuesday and the House on Wednesday. Fed funds futures continue to ascribe a roughly one-in-three chance of a rate increase in March, but expect the chair to remain noncommittal. Lastly, fourth quarter earnings continue, with Cisco, Deere, Pepsi, and Marathon Oil among the names scheduled to report this week.
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The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
The NASDAQ composite index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
The Dow Jones Industrial Average (DJIA) is an index containing stocks of 30 Large-Cap corporations in the United States. The index is owned and maintained by Dow Jones & Company.
XLE Energy Sector ETF: Energy companies in this index primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services. Leaders in the group include ExxonMobil Corp., Chevron Corp, and ConocoPhillips.
The KBW Bank Sector (BKX) is a capitalization-weighted index composed of 24 geographically diverse stocks representing national money center banks and leading regional institutions. BKX is based on one-tenth the value of the value of the Keefe, Bruyette & Woods Index (KBWI).
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