Markets: The market rallied once again this week, with the S&P 500, and DOW hitting new highs, and the NASDAQ rallying as well, but, once again, Small caps didn’t join the party, and were down -.79% for the week.
October was a big month for the market, which saw the DOW rise over 4%, the S&P gain 2.2%; the NASDAQ up 3.6%; and small caps gain .73%:
Dividend Stocks Update: These high dividend stocks go ex-dividend this coming week: Crestwood Equity Partners LP (NYSE:CEQP), Delek Logistics Partners LP (NYSE:DKL), EEP, DCP Midstream LP (NYSE:DCP), MMLP, SPH, APLP, Global Net Lease Inc (NYSE:GNL), NEWM, AHC, NS, NSH, Navios Maritime Midstream Partners LP (NYSE:NAP), NAT.
Tax Bill:
Morgan Stanley (NYSE:MS) warned in a report this week that enacting aggressive tax cuts to businesses and individuals risks “overheating” the economy and causing stocks to “boom then bust.” The concern is that slashing the corporate tax rate to 35% from 20% could backfire by forcing the Federal Reserve to accelerate interest rate hikes. That in turn would raise borrowing costs for consumers and businesses, potentially upsetting the stock market along the way.
“Adding stimulus to an already strong economy likely stirs the Fed…pulling forward the end of an aging cycle,” Morgan Stanley strategists wrote.
Ironically, given all the excitement on Wall Street about tax cuts, Morgan Stanley argues that “failure of tax reform” would be the “best” outcome for extending the economic and market recovery from the Great Recession. Unemployment fell in October to a 16-year low of 4.1%. The US has a record number of job openings; Consumer confidence has soared, and the U.S. is enjoying the best 6 months of growth in three years.
“There is little precedent for large-scale fiscal easing at current levels of unemployment,” Morgan Stanley analysts wrote (Source: CNNMoney)
Volatility: The VIX was down 6.7% this week, and finished at $9.14.
Currency: The $ had a strong October, and rose vs. most major currencies for the month:
Market Breadth: 15 of the DOW 30 stocks rose this week, vs. 15 last week. 50% of the S&P 500 rose, vs. 48% last week.
Economic News: As expected, the Fed maintained its current rates. Jerome Powell was appointed as the new Fed chief, replacing Janet Yellen. Less certain is where Mr. Powell would lead the Fed if the economy falters. Mr. Powell, a member of the Feds board of governors since 2012, has consistently voted with Ms. Yellen to slowly raise interest rates and sell off assets that the Fed bought up in the wake of the severe recession of 2008 and 2009. Colleagues consider him a centrist and pragmatist.
But he lacks the deep background in economics of some of his predecessors, and he has expressed skepticism in the past about the unconventional measures that the Fed took after the recession.
Mr. Powell could also depart from the Feds current trajectory when it comes to regulating banks and other financial institutions rules which the current administration has said should be loosened. (Source: NY Times)
Non-Farm Payrolls bounced back from September’s low, to add 261,000 jobs in October, as the Unemployment Rate dipped to 4.1%. The Employment Cost Index rose 0.7% in the third quarter, pushing the gain over the past 12 months close to a nine-year high.
Wages some 70% of employment costs climbed 0.7% in the third quarter. Benefits advanced 0.8%. However, average hourly earnings were 2.4 percent higher in October than a year earlier, barely keeping pace with inflation.
The Conference Board said its consumer confidence index rose to 125.9 in October from an upwardly revised 120.6 in September. That’s the best reading since Dec. 2000.
Week Ahead Highlights: Q3 Earnings season continues, with many healthcare-related stocks reporting, including Humana (NYSE:HUM), Cardinal Health (NYSE:CAH), CVS, and Mylan (NASDAQ:MYL). Walt Disney Company (NYSE:DIS) will also be reporting.
With results in from more than three-quarters of the S&P 500 companies, third-quarter profit growth is estimated at 8.0 percent, up from 4.3 percent three weeks ago.
Much of the improvement has come with stronger-than-expected technology results. Ninety percent of S&P technology index names are beating earnings expectations, while 72 percent are surpassing estimates in the overall S&P 500, the data shows.
Materials companies’ earnings, which have benefited from higher commodity prices tied to the weaker dollar, have had a high percentage of beats as well. (Source: Reuters)
Next Week’s US Economic Reports: It’ll be a very quiet week for economic data – consumer sentiment comes out on Friday.
Sectors: Tech led by a wide margin in October, with Consumer Staples trailing.
Futures: WTI Crude futures rose 10.5% in October, natural gas also gained 3.4%.
World stock markets notched up a fresh record high on Wednesday, powered by a 3% jump in basic resources shares after oil prices hit their highest since mid-2015, as data showed OPEC has significantly improved compliance with its pledged supply cuts, and Russia is also widely expected to keep to the deal.
