The WMA Weekly Market Wrap v. 171219

December 19, 2017

Mostly Higher (Again)

Most of the major domestic benchmarks recorded modest gains last week, bringing the large-cap benchmarks and the tech-heavy Nasdaq to new all-time highs. The smaller-cap benchmarks lagged and remained a bit off the peaks they established early in the month. Within the S&P 500, consumer discretionary and consumer staples stocks led the gains, with the former helped by news of Disney’s purchase of much of 21st Century Fox. Materials and utilities shares lagged, and energy shares were also weak despite international oil prices climbing above $65 on Tuesday, their highest level since June of 2015. A late-November agreement between OPEC and non-OPEC member Russia to extend production cuts has pushed up prices, and recent pipeline shutdowns and other disruptions have provided further supply pressure.

Trading volumes were subdued at the beginning of the week but picked up as traders awaited the outcome of the Federal Reserve’s policy meeting. The meeting resulted in few surprises, however, with the Fed announcing its third quarter-point rate hike of the year, as was almost universally expected, while keeping its rate outlook for 2018 intact, anticipating three more hikes next year. The Fed’s failure to adjust rate expectations higher weighed on financials a bit, however, as did a soft November inflation reading.

Uncertainty over the progress of House and Senate Republicans in finalizing tax reform legislation sparked some volatility late last week. On Thursday, stocks turned lower after reports surfaced that Senator Marco Rubio would vote against the bill unless it included a larger child tax credit for low-income families. Traders seemed to regain confidence that the bill would pass, however, and financials led a rebound when trading resumed Friday morning. Republican leaders increased the child tax credit, however, and agreement was reached on Friday, pushing stocks higher to close out the week.

Longer-term bond yields were largely unchanged last week, with strong November retail sales data helping offset soft inflation figures. Flows were light.

Major European stock indexes were modestly down last week, although the UK’s FTSE 100 recorded gains. Stocks were mixed throughout Asia. However, economic data showing that China’s growth cooled last month and several tightening measures by its central bank are the latest signs that it could be entering a long-awaited slowdown after surprisingly strong growth in 2017.

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