The Market Today
An Exciting 2017 Sets the Bar High Heading into 2018
by Craig Dismuke, Dudley Carter
As 2017 comes to a close, MT thanks you for your patronage this year. We hope our insights have been useful and projections modestly accurate. Happy New Year to all of our readers and here’s to a prosperous 2018.
Managing the Impact of the New Tax Bill in 2017 and 2018: This morning, Goldman Sachs became the latest in a list of companies to announce a significant hit to 2017 earnings as a result of the tax bill. However, as with the other announcements, the pain appears temporary with significant future benefits. For companies looking to do tax loss swaps in their investment portfolios, there is ample cover from other companies throwing everything – and the kitchen sink – into 2017 to prepare for an improved 2018. Click here to see the WSJ article reference in yesterday’s MT.
Overnight Activity – Equities, Sovereign Yields Mixed to End 2017: Despite another mixed, low-volume overnight session, global equities will close out 2017 with strong year-to-date gains. Positive daily momentum in Asia dissipated during European trading with the U.K.’s FTSE 100 the only major national index in positive territory Friday. However, the Stoxx Europe 600, an index that captures activity across Europe, is up more than 7% for 2017. Earlier, the MSCI Asia Pacific Index rose 0.3% to end the year up 29%. Despite the mixed performances globally, U.S. futures are up solidly overnight. The Dow, S&P, and Nasdaq will look to cap a strong year of their own Friday. The Nasdaq is up more than 29%, the Dow has gained almost 26%, and the S&P has added an even 20%. As to rates, Treasury yields had moved lower even with most yields in Europe climbing. European yields were already higher before a stronger-than-expected German inflation result pushed them to their highs of the day. In potentially the most significant global economic report of the day, Germany’s CPI rose 0.8% MoM which dropped the YoY rate from 1.8% to 1.6%; both were 0.2% faster than expected. The response in European yields also sent longer Treasury yields to their Friday peak. The 10-year yield moved to +0.6 bps on the day. The 2-year yield remained down 1.2 bps at 1.90%. It appears the Dollar will slide into year-end with the greenback Friday’s clear underperformer of all major currencies. The U.S. currency has dropped in nine of the last 10 sessions and is down 9.7% for the year; its biggest annual drop since 2013. Crude prices edged higher overnight with U.S. crude now hovering at its highest level of the year (and the highest since mid-2015). Oil prices got another boost yesterday after the EIA reported a drop in U.S. crude inventories and production.
Yesterday’s Trading Activity – The Dow Added Another Tally to Its Record Setting Run: Pre-market trading trends held through to Thursday’s close with stocks ending higher as futures predicted and Treasury yields holding to an overnight rise. The Dow gained 0.3% to lead the major indices and close at its 71st record high of 2017. Eight of the nine sectors closed higher led by an 0.6% gain in health care and an 0.4% gain for financials. The S&P and Nasdaq improved by just under 0.2% but fell short of eclipsing their previous records. The S&P was led higher by telecom and utilities companies as ten of eleven sectors realized daily gains. Energy companies ended essentially unchanged despite crude prices moving higher and closing near their two-and-a-half-year highs from early in the week. Treasury yields closed up but longer yields were off of their daily highs. The 2-year yield rose 1.4 bps to 1.91%, its highest mark in more than nine years. The 10-year yield closed up 2.0 bps after rising by as much as 2.9 bps. The Dollar ended just off of its daily lows and at its weakest level since September 25.