Market Analysis

Beyond the Numbers

Optimism About Tax Reform May Lead To Strength On Wall Street
11/30/2017 8:57 AM

The major U.S. index futures are pointing to a higher opening on Thursday following the mixed performance seen in the previous session.

Early buying interest may be generated amid optimism about the outlook for tax reform after Senate Republicans cleared a key procedural hurdle.

The Senate voted 52 to 48 along party lines to begin formal debate on the GOP tax reform bill after negotiations convinced Republican holdouts to vote for the legislation.

The approval of the procedural motion sets the stage for a final Senate vote on the tax reform bill later this week, although some issues still need to be resolved.

Stocks turned in a mixed performance during trading on Wednesday following the broad based rally seen in the previous session. While the Dow climbed to a new record closing high, the tech-heavy Nasdaq showed a sharp move to the downside.

The major averages ended the day on opposite sides of the unchanged line. The Dow climbed 103.97 points or 0.4 percent to 23,940.68, the Nasdaq plunged 88.02 points or 1.3 percent to 6,824.34 and the S&P 500 edged down 0.97 points or less than a tenth of a percent to 2,626.07.

The pullback by the Nasdaq was partly due to profit taking, as traders cashed in on recent strength among tech stocks amid concerns the companies won't see as much of a benefit from proposed tax reform.

Semiconductor stocks showed a particularly steep drop, dragging the Philadelphia Semiconductor Index down by 4.4 percent. The index pulled back further off the record closing high set last Friday.

Micron Technology (MU), Lam Research (LRCX), and Applied Materials (AMAT) turned in some of the semiconductor sector's worst performances on the day.

Electronic storage, software, and internet stocks also saw significant weakness within the tech sector, moving lower along with gold stocks.

On the other hand, transportation stocks showed a strong move to the upside, adding to the gains posted in the previous session. The Dow Jones Transportation Average surged up by 3.3 percent to a record closing high.

Expedia (EXPD), CSX Corp. (CSX), Southwest Airlines (LUV), and Norfolk Southern (NSC) posted standout gains on the day.

Banking stocks also extended the rally seen on Tuesday, driving the Dow Jones Banks Index up by 2.6 percent. The index reached its best closing level in almost ten years.

The continued strength among banking stocks reflected optimism about tax reform as well as Federal Reserve Chair nominee Jerome Powell's comments calling financial regulations "tough enough."

The mixed performance on Wall Street came as traders digested outgoing Fed Chair Janet Yellen's testimony before the Congressional Joint Economic Committee, which further solidified expectations the Fed will raise interest rates next month.

In prepared remarks, Yellen said economic growth appears to have stepped up from its subdued pace early in the year.

"The economic expansion is increasingly broad-based across sectors as well as across much of the global economy," Yellen said.

She added, "I expect that, with gradual adjustments in the stance of monetary policy, the economy will continue to expand and the job market will strengthen further, supporting faster growth in wages and incomes."

Yellen noted inflation has continued to run below the Fed's 2 percent target but said recent lower readings on inflation likely reflect transitory factors.

"With the minutes from the Fed's November meeting revealing that most officials still share Yellen's view that the recent weakness of inflation will prove transitory, a December rate hike still looks the most likely outcome," said Andrew Hunter, U.S. economist at Capital Economics.

On the U.S. economic front, the Commerce Department released a report showing stronger than previously estimated economic growth in the third quarter.

The report said real gross domestic product surged up by an upwardly revised 3.3 percent in the third quarter compared to the originally reported 3.0 percent jump. Economists had expected the increase in GDP to be upwardly revised to 3.2 percent.

With the bigger than expected upward revision, the GDP growth in the third quarter is now stronger than the 3.1 percent increase seen in the second quarter.

A separate report from the National Association of Realtors showed a much bigger than expected increase in pending home sales in the month of October.

NAR said its pending home sales index surged up by 3.5 percent to 109.3 in October after dipping by 0.4 percent to a downwardly revised 105.6 in September. Economists had expected pending home sales to climb by 1.0 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Commodity, Currency Markets

Crude oil futures are climbing $0.49 to $57.79 a barrel after falling $0.69 to $57.30 a barrel on Wednesday. An ounce of gold is trading at $1,280.10, down $6.10 compared to the previous session’s close of $1,286.20. On Wednesday, gold slumped $13.

On the currency front, the U.S. dollar is trading at 112.31 yen compared to the 111.93 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1855 compared to yesterday’s $1.1863.


Asian stocks fell broadly on Thursday as weakness in tech stocks following the overnight pullback by the tech-heavy Nasdaq overshadowed positive manufacturing data from China.

Chinese stocks fell as investors booked some profits in recent outperformers. The benchmark Shanghai Composite Index dropped 20.28 points or 0.6 percent to 3,317.58, while Hong Kong's Hang Seng Index tumbled 446.48 points or 1.5 percent to 29,177.35.

The manufacturing sector in China expanded at a faster pace in November, the National Bureau of Statistics said with a PMI score of 51.8. That beat forecasts for 51.4 and was up from 51.6 in October.

Australian shares retreated, dragged down by banks after the government said it will hold a royal commission inquiry into its banking and financial sector. Investors largely ignored encouraging building approvals and private sector credit data.

The benchmark S&P/ASX 200 Index dropped 41.22 points or 0.7 percent to 5,969.89, while the broader All Ordinaries index ended down 36.90 points or 0.6 percent at 6,059.20.

Lender ANZ lost 1.1 percent and Commonwealth fell 1.9 percent, and mining heavyweights BHP Billiton and Rio Tinto ended down over 1 percent each. Gold miners Evolution Mining, Regis Resources and Newcrest tumbled 2-3 percent.

Gaming machine maker Aristocrat Leisure slumped 6.8 percent after it agreed to buy Seattle-based Big Fish Games for $990 million in cash. AWE soared as much as 23 percent after a Chinese state-owned company made a $430 million takeover offer for the oil and gas group.

Meanwhile, Japanese shares hit a three-week high as the dollar firmed up against the yen and gains in the financial sector offset weakness in tech shares. There were also hopes that the Bank of Japan will buy more exchange-traded funds.

The Nikkei 225 Index climbed 127.76 points or 0.6 percent to finish at 22,724.96, while the broader Topix index closed 0.3 percent higher at 1,792.08.

Banks Mitsubishi UFJ Financial, Mizuho Financial and Sumitomo Mitsui Financial rose about 1 percent each, and brokerage Nomura Holdings jumped more than 3 percent. Semiconductor equipment manufacturer Tokyo Electron declined 1.1 percent.

Shares of Oriental Land Co. jumped 3.6 percent on a Nikkei report that the operator of Tokyo Disneyland will invest more than 300 billion yen, or $2.7 billion, to upgrade and expand its resort in Japan.

On the economic front, Japanese industrial production returned to growth in October. but the pace of growth fell short of estimates, a government report showed. Housing starts fell more than expected during the month.


European stocks are mostly higher on Thursday even as U.K. markets fell for a second consecutive session on further gains in the pound amid signs of progress on the EU's key Brexit issues, including the Irish border.

While a selloff in technology stocks subsided, the day's economic reports painted a mostly positive picture of regional economies.

The U.K.’s FTSE 100 Index has dipped by 0.2 percent, but the French CAC 40 Index is up by 0.3 percent and the German DAX Index is up by 0.6 percent.

Swiss lender Credit Suisse has jumped after it unveiled plans to boost shareholder returns as part of its annual investor day.

French carmaker Peugeot has also moved to the upside after reports that its parent company PSA Group is seeking to recover 600 million euros from General Motors in relation to its acquisition of Opel.

Aviva has rallied after the insurance giant upgraded its targets for earnings growth, cash and dividend at a conference for investors and analysts.

Exchange operator Euronext has also moved notably higher after acquiring the Irish Stock Exchange for 137 million euros.

On the other hand, Daily Mail and General Trust shares have fallen sharply after the company reported a full-year loss and warned that next year's advertising revenues could be adversely affected by recent disposals and challenging conditions.

In economic news, German inflation accelerated more than anticipated in November and the unemployment total fell more than expected, while retail sales marked the first drop in eight months in October, separate reports showed.

French inflation rose slightly to 1.2 percent in November from 1.1 percent in October, flash data from statistical office Insee showed. The rate matched economists' expectations.

Eurozone consumer price inflation advanced 1.5 percent year-on-year in November following October's 1.4 percent increase, while the region's jobless rate fell to the lowest level since early 2009.

U.S. Economic Reports

A report released by the Labor Department showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended November 25th.

The report said initial jobless claims edged down to 238,000, a decrease of 2,000 from the previous week's revised level of 240,000.

Economists had expected jobless claims to inch up to 240,000 from the 239,000 originally reported for the previous week.

A separate report from the Commerce Department showed personal income increased by slightly more than expected in October, while personal spending rose in line with estimates.

The report said personal income climbed by 0.4 percent in October, matching the increase seen in September. Economists had expected income to rise by 0.3 percent.

The Commerce Department also said personal spending rose by 0.3 percent in October after climbing by a downwardly revised 0.9 percent in September.

Economists had expected spending to rise by 0.3 percent compared to the 1.0 percent jump originally reported for the previous month.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of November.

The Chicago business barometer is expected to drop to 63.0 in November from 66.2 in October, although a reading above 50 would still indicate growth.

Dallas Federal Reserve President Robert Kaplan is due to take part in a moderated Q&A session at the Real Estate Council Speaking Series in Dallas at 1 pm ET.

Stocks In Focus

Shares of Sears (SHLD) are moving sharply higher in pre-market trading after the department store operator reported a narrower than expected third quarter loss on better than expected revenues.

Arts and crafts retailer The Michaels Cos. (MIK) may also see early strength after reporting third quarter earnings that came in slightly above analyst estimates.

Shares of PVH Corp. (PVH) could also move to the upside after the apparel maker reported better than expected third quarter results and raised its full-year guidance.

On the other hand, shares of Jack In The Box (JACK) may come under pressure after the restaurant chain reported fiscal fourth quarter results that came in below analyst estimates.

Networking equipment maker Juniper Networks (JNPR) is also likely to give back ground after Nokia (NOK) denied reports it is talks to acquire the company.

Shares of Workday (WDAY) are also moving lower in pre-market trading even though the human resources software maker reported better than expected third quarter results and raised its full-year sales forecast.
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