11/27/2017
U.S. equities resumed their winning ways last week, halting a shallow two-week skid. The S&P 500 rose 0.9 percent during the holiday shortened week and closed above 2600 for the first time. Technology stocks once again drove most the gain. The sector added 1.8 percent on the week, and for the year has more than doubled the 16 percent rise in the overall index. Industrials, materials and consumer discretionary stocks also rose more than the overall index for the week.

The price of oil continued to climb last week. West Texas Intermediate (WTI) rose $2.24 a barrel to close at $58.95, its highest price in over two years. From its year-to-date low of $43.78 in June, WTI has surged by 35 percent on optimism that the global inventory overhang is subsiding. But not everyone is a believer. During that same interim the energy sector of the S&P 500 is up just 6 percent.

Fed Notes Show a Modestly Dovish Tone

Treasury yields dipped following release of the Fed’s last meeting minutes, which seemed to reveal some self doubt regarding its belief in the inevitability of higher inflation. The ten-year note yield had climbed to 2.37 percent before the minutes were released, only to finish the week unchanged at 2.34 percent. The constant maturity two-year note fell five basis points following the release of the minutes, and ended the week just one basis point higher at 1.75 percent. For those watching the slope of the yield curve, the spread between the two and ten-year continued to narrow last week, ending at 58 basis points, another cycle low, and the lowest since October, 2007. And the spread between high yield and government bonds narrowed slightly after having widened for much of the previous month.

The Fed minutes were viewed as modestly dovish, but did little to alter expectations of another rate hike at the Fed’s meeting in two weeks. The Bloomberg interest rate probability function indicates a 97 percent likelihood of a hike, while the CME FedWatch tool puts the odds at 93 percent.

Investors Watching Global Stocks, Tax Reform and Economic Data

Stocks in the Eurozone also rose smartly last week. The EuroStoxx 50 index climbed 1.0 percent, halting its own two-week slide, on further evidence of firming economic activity, and some optimism regarding progress on the formation of a working government coalition in Germany. Japanese stocks also resumed their winning ways after a one week hiatus, rising 0.7 percent for the week. The MSCI EM index rose for the fourth straight week.

Investor attention this week will be squarely on the U.S. Senate, which begins debate on its version of tax reform, which it hopes to bring to a floor vote as early as Thursday. Commencement of reconciliation with the House version would follow, with Republican leadership publicly aiming for a bill on the president’s desk before year end. This week also includes the confirmation hearing of Jerome Powell as the next Fed chair. And the original spending deal hashed out with Democratic leadership is set to expire on December 8, further crowding the legislative calendar.

The economic calendar this week also contains several releases of note, headlined by the October report on personal income, spending and prices. The trailing twelve-month headline Personal Consumption Expenditure (PCE) deflator is expected to have edged lower to 1.5 percent from 1.6 percent in September, while the core rate is expected to have moved higher to a year-over-year pace of 1.4 percent, up from 1.3 in the prior month. Also scheduled are reports on manufacturing activity, home and motor vehicle sales, and consumer confidence. Third quarter GDP growth will be revised modestly higher, per the Bloomberg consensus, from an annualized pace of 3.0 up to 3.2 percent. For the current quarter, the forecasting model of the Atlanta Federal Reserve indicates annualized growth of 3.4 percent, while the New York Fed’s model is forecasting growth of 3.7 percent.

Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Indexes are unmanaged and are not available for direct investment.
West Texas Intermediate (WTI) is a grade of crude oil commonly used as a benchmark for oil prices. WTI is a light grade with low density and sulfur content.
The EURO STOXX 50 is a market capitalization-weighted stock index of 50 large, blue-chip European companies operating within eurozone nations. The universe for selection is found within the 18 Dow Jones EURO STOXX Supersector indexes, from which members are ranked by size and placed on a selection list. 
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
The Nikkei index is a price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange.
The personal consumption expenditure (PCE) measure is the component statistic for consumption in gross domestic product (GDP) collected by the United States Bureau of Economic Analysis (BEA).

The FedWatch tool calculates unconditional probabilities of Federal Open Market Committee (FOMC) meeting outcomes to generate a binary probability tree. CME Group lists 30-Day Federal Funds Futures (FF) futures, prices of which incorporate market expectations of average daily Federal Funds Effective Rate (FFER) levels during futures contract months.
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.
 
Data on the employment situation is released monthly be the Bureau of Labor Statistics. 
 
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