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Market Commentary

Stock Market Continues to Hit Records

Posted on October 19, 2017

The Dow once again broke through 23k and finally ended the day past that latest milestone. Seems like more and more folks are talking about it, and worrying at the same time. Some were wondering if the market is excited about the proposed tax reform plan, and it if doesn't pass (or pass like many would prefer), is this the impetus for a correction?

Good morning!

  • Yes, the Dow Jones Industrial Average powered past 23k yesterday, but the WSJ says this latest milestone masks a potentially worrisome trend: investors keep yanking money out of stock funds
    • o Investors pulled roughly a net $36 billion out of U.S. stock mutual and exchange-traded funds in the third quarter, according to EPFR Global
      • • Overall in 2017, more money has flowed out of such funds than has flowed in, EPFR data show, even as the Dow has climbed to 51 fresh highs this year
    • o I mentioned tax reform and its impact on the markets, Treasury Secretary Mnuchin said yesterday, "To the extent we get the tax deal done, the stock market will go up higher. But there is no question in my mind if we don't get it done you are going to see a reversal of a significant amount of these gains."
      • How much of the tax reform excitement is "baked" into the markets is the question some think more than others
    • o Here is a story from the WSJ…didn't we say about a month ago "complacency" was the word for these markets right now…scary…story says less trading volume due to no news and no volatility while passive funds gain in popularity
  • Also yesterday, the Fed's Beige Book emphasized the impact of the weather with the word 'hurricane' cited 61 times and 'storm' mentioned on 9 occasions    
    • o Economic activity expanded at a modest to moderate pace with 'major disruptions' from Harvey and Irma in some areas
      • Employment growth was modest on balance and despite tight labor markets the Fed said, "despite widespread labor tightness, the majority of districts reported only modest to moderate wage pressures" while pricing pressures remained modest…not what the Fed was looking for at all
  • • In addition, housing starts fell 4.7% in September to a 1.127 million unit annual rate
    • o Single-family starts in the South more than accounted for the decline (-73k vs -56k in total starts)
    • Permits fell a similar 4.5% to a 1.215 million unit pace
      • • The swing in permits reflected multifamily activity in the South and the West, after strength in both regions in the prior month, although multifamily activity tends to be volatile
  • Today's economic calendar includes initial jobless claims and the Philly Fed Business Outlook
    • o The jobless claims number has been at record lows for some time, although the past few weeks the data has been skewed by weather related issues
  • Philip Morris, Paypal, BNY Mellon, Danaher and Blackstone are among companies reporting earnings
  • Current Fed Chair Yellen apparently is meeting with President Trump today
    • o To some, it is not a surprise she is still in the running as the other candidates have been no surprise either
    • o Seems like the market is having a good time making bets on the next Fed Chair, but it is still anyone's guess and the candidate still needs to go through the confirmation process
  • • In the news:      
  • • Gold up over $5/oz while oil is off almost $1
  • • Treasuries on the longer end trending lower
    • o 2-yr: 1.54%
    • o 10-yr: 2.31%
    • o 30-yr: 2.82%
  • • LIBOR
    • o 1-month: 1.24%
    • o 3-month: 1.36%
  • • Fed funds effective was 1.16%

Have a terrific Thursday!


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