Market Analysis

Beyond the Numbers

Uncertainty About Tax Bill May Lead To Choppy Trading On Wall Street
12/1/2017 8:51 AM

The major U.S. index futures are pointing to a roughly flat opening on Friday following the strong upward move seen in the previous session. Traders may be reluctant to make any significant moves amid uncertainty about the prospects for the Senate Republican tax reform bill.

Optimism about passage of the bill contributed to the strength seen on Thursday, although GOP leaders were forced to delay a final vote after the legislation hit a snag.

Reports suggest the Senate parliamentarian ruled against the so-called “trigger” proposed by Senator Bob Corker, R-Tenn., which would raise taxes if the economic growth generated by the tax cuts does not offset the cost.

The latest reports suggest that Republicans have rounded up enough votes to pass a revised bill, with a series of roll call votes scheduled for 11 am ET.

The outcome of the final vote on the tax reform bill is likely to have a major impact on the markets, as optimism about a corporate tax rate cut has been a key driver behind the run by stocks to new record highs.

Following the mixed performance seen on Wednesday, stocks moved mostly higher during trading on Thursday. With the upward move on the day, the Dow and the S&P 500 reached new record closing highs.

The major averages finished the day firmly in positive territory but off their highs of the session. The Dow surged up 331.67 points or 1.4 percent to 24,272.35, the Nasdaq climbed 49.58 points or 0.7 percent to 6,873.97 and the S&P 500 advanced 21.51 points or 0.8 percent to 2,647.58.

The strength on Wall Street partly reflected optimism about the outlook for tax reform after Senate Republicans cleared a key procedural hurdle.

The Senate voted 52 to 48 along party lines on Wednesday 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 late Thursday or early Friday.

Adding to the optimism about the passage of the bill, Senator John McCain, R-Ariz., announced he would support the legislation.

Upbeat economic data may also have generated some buying interest, with a Labor Department report showing 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.

Meanwhile, MNI Indicators released a report showing a modest slowdown in the pace of growth in Chicago-area business activity in the month of November.

Extending the strong upward move seen over the two previous sessions, transportation stocks moved sharply higher on the day. The Dow Jones Transportation Average surged up by 2 percent to a record closing high.

Southwest Airlines (LUV), Union Pacific (UNP), and C.H. Robinson Worldwide (CHRW) turned in some of the sector's best performances.

Significant strength was also visible among oil service stocks, as reflected by the 1.8 percent gain posted by the Philadelphia Oil Service Index. The strength in the sector came as OPEC and other oil exporters agreed to extend an agreement limiting production through 2018.

Biotechnology stocks also turned in a strong performance, resulting in a 1.8 percent jump by the NYSE Arca Biotechnology Index. With the gain, the index reached its best closing level in over a month.

Natural gas, software and retail stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are rising $0.39 to $57.79 a barrel after inching up $0.10 to $57.40 a barrel on Thursday. Meanwhile, after sliding $9.50 to $1,276.70 an ounce in the previous session, gold futures are unchanged.

On the currency front, the U.S. dollar is trading at 112.63 yen compared to the 112.54 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1875 compared to yesterday’s $1.1904.


Asian stocks gave up early gains to end mixed on Friday after the Senate vote on the tax bill was delayed and a private survey showed that activity in China's vast manufacturing sector slowed in November to the weakest pace in five months.

The dollar held steady against the Japanese yen and oil prices extended overnight gains after a decision by the world's biggest oil producers to extend oil output cuts until the end of 2018, helping support underlying sentiment to some extent. Regional manufacturing surveys also painted a mostly positive picture.

Chinese stocks ended roughly flat on concerns over slowing growth after the Caixin manufacturing PMI dropped to 50.8 in November from 51.0 in October, signaling a slight slowdown in growth.

China’s Shanghai Composite Index edged down 0.62 points or less than a tenth of a percent to 3,317.81, while Hong Kong's Hang Seng Index fell 103.11 points or 0.4 percent to 29,074.24.

Meanwhile, Japanese shares rose for a third day as the yen weakened against the greenback and investors digested mostly positive readings on manufacturing, inflation, private capital expenditure, household spending and unemployment.

The Nikkei 225 Index closed up 94.07 points or 0.4 percent at 22,819.03, taking its weekly gain to 1.2 percent. The broader Topix Index closed 0.3 percent higher at 1,796.53.

Sharp Corp. jumped almost 8 percent on news that its shares will return to the First Section of the Tokyo Stock Exchange on December 7th. Toshiba gained 1.8 percent on a Bloomberg report that the Japanese conglomerate and Western Digital (WDC) are close to settling their legal dispute.

Australian shares eked out modest gains, led by financials and industrials on U.S. tax reform hopes. Positive manufacturing data also buoyed sentiment.

The benchmark S&P/ASX 200 Index rose by 19.86 points or 0.3 percent to 5,989.76, while the broader All Ordinaries Index ended up 17.40 points or 0.30 percent at 6,074.60.

Lender ANZ gained 0.6 percent and Westpac rose 0.3 percent, shrugging off concerns surrounding a government inquiry into the banking and financial sectors.

Billabong International soared 21.8 percent after the surfwear retailer received a confidential, non-binding merger proposal from Boardriders.

The uptick in oil prices helped lift energy stocks, with Woodside Petroleum, Santos, Origin Energy and Oil Search rising 1-2 percent. Beach Energy shares jumped as much as 8.6 percent. Mining giant BHP Billiton rose over 1 percent and biotechnology firm CSL advanced 1.6 percent.


European stocks are mostly lower on Friday as manufacturing data from China disappointed and investors awaited the Senate's vote on tax reform legislation.

The French CAC 40 Index and the German DAX Index are both down by 0.6 percent, although the U.K.’s FTSE 100 Index is just above the unchanged line.

British bank Barclays has shown a notable move to the downside after cutting stake in its Africa division. French dairy giant Danone has also moved lower after it was awarded damages of 105 million euros to be paid immediately by Fonterra for costs suffered as a result of the Fonterra food safety failures of 2013.

On the positive side, British pharmaceutical firm Indivior has soared after its opioid addiction drug was approved by the U.S. health regulator.

French telecom company Altice has also rallied after it agreed to sell its Swiss telecommunications solutions business and data center operations.

Royal Dutch Shell has advanced after striking a deal with PetroChina that will pave the way for the development of large gas project in Australia.

U.S. Economic Reports

At 9:05 am ET, St. Louis Federal Reserve President James Bullard is scheduled to give a presentation on the U.S. Economy and Monetary Policy at the Economic Briefing in Little Rock, Arkansas.

Dallas Fed President Robert Kaplan is due to participate in a moderated Q&A session at the "Border Economic Development and Entrepreneurship Symposium" in McAllen, Texas, at 9:30 am ET.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of November.

The ISM’s purchasing managers index is expected to edge down to 58.4 in November from 58.7 in October, but a reading above 50 would still indicate growth in the manufacturing sector.

The Commerce Department is also due to release its report on construction spending in the month of October at 10 am ET. Construction spending is expected to climb by 0.5 percent.

At 10:15 am ET, Philadelphia Fed President Patrick Harker is scheduled to discuss “Inclusive Economic Growth” at the “Philadelphia Fed Policy Forum: People, Place, Prosperity: Revitalizing Our Cities.”

Stocks In Focus

Shares of Ulta Beauty (ULTA) are moving notably lower in pre-market trading after the cosmetics retailer reported better than expected third quarter earnings but provided disappointing guidance.

Apparel retailer Genesco (GCO) could also come under pressure after reporting weaker than expected third quarter earnings and cutting its full-year forecast.

Shares of Big Lots (BIG) are also seeing pre-market weakness even though the discount retailer reported better than expected third quarter earnings and raise its full-year earnings guidance.

On the other hand, shares of Ambarella (AMBA) are likely to see early strength after the maker of video processing chips reported third quarter earnings that beat analyst estimates.

Virtualization software developer VMWare (VMW) is also moving higher in pre-market trading after reporting better than expected third quarter results.

Shares of Five Below (FIVE) may also move to the upside after the discount retailer reported third quarter results that exceeded analyst estimates and raised its full-year guidance.
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