The big news on Monday was the value of stocks listed on the Standard and Poor’s 500 surpassing $20 trillion for the first time, due to expectations of rising U.S. economic growth and improving corporate profits.
The major market averages continued their assent on Monday led by the Dow Jones Industrial Average up 142 points or 0.70 percent on the day. Though larger company stocks received the largest boost from Monday’s rally, the advance was still broad based with the Russell 2000 small company index gaining 0.25 percent and closing at a new all-time high. Both the Standard and Poor’s 500 and the Nasdaq Composite rose 0.52 percent on the day. Monday’s gains are a continuation of the rally that began last Thursday after President Trump said he would unveil a “phenomenal” business tax package very soon.
According to Credit Suisse, smaller companies like those that make up the Russell 2000 have less access to international tax loopholes. As a result, smaller companies typically have to pay a 32 percent effective tax rate, versus the larger companies that make up the S&P 500 and pay a roughly 26 percent rate. For this reason, many investors believe smaller companies will benefit more if President Trump is successful in convincing congress to lower the corporate tax rate from 35 percent, the highest rate of any developed nation.
Investors appear to be anticipating the U.S. economy heating up in the coming months by how they are investing today. The top performing sectors on Monday were led by the Dow Jones U.S. Basic Materials index up 1.00 percent, followed by the Dow Jones U.S. Financial index gaining 0.92 percent on the day. These sectors appear to be anticipating inflation which includes not only rising commodity prices, but rising interest rates as well.
We will be watching to see what happens with the various tax announcements in the next couple of weeks.
Laif E. Meidell, CMT
Happy Valentine’s Day! We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
CONSUMER SENTIMENT SLIPS A BIT
The University of Michigan’s preliminary February index of consumer sentiment came in at a reading of 95.7 Friday, compared with a final January mark of 98.5 (which was a 13-year peak). Economists polled by Bloomberg had expected a slight decline to 98.0. While this was the index’s lowest level in three months, it still topped many of the monthly readings from 2016.1HOW IS
EARNINGS SEASON GOING?
Nearly two-thirds of S&P 500 members have issued Q4 results so far. As Zacks Investment Research noted Wednesday, more than 69% of these S&P components have beaten earnings-per-share estimates; more than 54% have surpassed revenue forecasts. Total Q4 earnings for S&P firms are projected to rise 7.3% over Q4 2015, the strongest annual earnings growth since Q4 2014.2
GOLD GAINS AS OIL WAVERS
Gold futures advanced 1.12% on the COMEX during a choppy week to a Friday settlement of $1,233.30. Light sweet crude for March delivery dipped at midweek, but then rebounded, settling at $53.81 Friday for a 5-day retreat of just 0.09%.3
STOCKS PUSH HIGHER
Wall Street rallied strongly Friday after President Trump (and the White House) mentioned an upcoming outline for business and individual income tax reform. For the week, the S&P 500 gained 0.81% to 2,316.10; the Nasdaq, 1.19% to 5,734.13; and the Dow, 0.99% to 20,269.37.4,5
On Monday, Noble Energy, Rent-A-Center, and Snyder’s-Lance offer earnings news. Tuesday, Federal Reserve chair Janet Yellen begins two days of testifying to Congress on monetary policy; the January PPI also arrives, plus earnings from Agilent Technologies, AIG, Devon Energy, Dr. Pepper Snapple, Express Scripts, Molson Coors, and T-Mobile. Reports on January retail sales and industrial output appear Wednesday, along with the January CPI and earnings announcements from Analog Devices, Applied Materials, Avis Budget Group, CBS, Choice Hotels, Cisco, Denny’s, GoDaddy, Groupon, Hilton Worldwide Holdings, Huntsman, Kraft Heinz, Marathon Oil, Marriott International, NetApp, NetEase, PepsiCo, TiVo, TripAdvisor, and Wyndham Worldwide. Thursday offers fresh data on building permits, housing starts, and initial claims; investors also review earnings from Avon, Boise Cascade, Cabela’s, Dean Foods, DISH Network, Duke Energy, Hyatt, and Waste Management. Bloomin’ Brands, Campbell Soup, Deere, Fluor, J.M. Smucker, and Spectra Energy announce earnings Friday.