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Markets Continue Rally

FED MAKES ITS FINAL RATE MOVE OF 2017

As expected, the Federal Reserve raised the benchmark interest rate by 0.25% last week. The Federal Open Market Committee voted 7-2 to take the target range for the federal funds rate up to 1.25-1.5%. Fed officials made little change to their dot-plot chart – they still see three rate hikes in 2018, and their consensus projection has the federal funds rate at 2.1% a year from now. They did elevate their 2018 GDP forecast from 2.1% to 2.5%.1

CORE INFLATION LAGS HEADLINE CPI ADVANCE

According to the Department of Labor, consumer prices rose 0.4% in November – but the core Consumer Price Index, which removes food and energy costs, only saw a gain of 0.1%. This left the 12-month increase in the core CPI at 1.7% compared with 2.2% for the headline number, a gap that may complicate matters for the Federal Reserve as it considers the pace of 2018 interest rate adjustments.2

BUYING, BUYING, and MORE BUYING

Retail sales climbed an impressive 0.8% in November following a strong 0.5% rise for October. Factoring out auto purchases, the November gain was 1.0%. Recent Department of Commerce data shows core retail sales (which do not include building materials, gasoline, and food) advancing at their best pace in three years.3

WALL STREET RALLIES

With the possibility of reduced corporate tax rates just ahead, institutional investors were notably bullish last week. Across five trading sessions, the S&P 500 gained 0.92% to 2,675.81; the Dow Jones Industrial Average, 1.33% to 24,651.74; Nasdaq Composite, 1.41% to 6,936.58. All that confidence helped send the CBOE VIX down to a Friday close of 9.42.4    

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Job growth continues...

ANOTHER MONTH OF SOLID HIRING

According to the Department of Labor, the U.S. workforce gained 228,000 more jobs than it lost during November. Annualized wage growth improved from 2.5% to 2.7%. The headline jobless rate held at 4.1% last month, while the U-6 rate, that includes the underemployed, ticked up a tenth of a percent to 8.0%. Even though October’s net job gain was revised down to 244,000, October-November 2017 represents the best two-month hiring period in more than a year.1,2

ISM INDEX MISSES EXPECTATIONS

The Institute for Supply Management’s gauge of service sector activity fell 2.7 points to a still-impressive reading of 57.4 in November. Economists polled by Briefing.com expected a retreat, albeit a lesser one: they projected a reading of 59.3.2

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Another New High for the S&P 500

CONSUMER SENTIMENT DECLINES FOR NOVEMBER

The University of Michigan’s monthly gauge of how households perceive current and future economic conditions ended the month at a mark of 98.5. Compared to the 100.7 final October reading, this was a disappointment. Still, the index was up 5.0 points year-over-year. Richard Curtin, the economist in charge of the consumer survey, noted that the index has hovered near “the highest levels since 2004” since January.1

   

HOME BUYING GETS A FALL BOOST

Existing home sales rose 2.0% in October, surpassing the consensus 0.7% gain forecast by analysts polled by Investing.com. Elsewhere in its latest monthly report, the National Association of Realtors revised September’s minor advance in home buying down to 0.4%.2

  

LEADING INDICATORS TAKE A MAJOR LEAP

After a decline of 0.2% in September, the Conference Board’s index of leading economic indicators soared 1.2% for October. This was double the gain forecast in a Reuters survey of economists. This surge in the 10-component index may signal an impressive fourth quarter.3

  

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Dow Surges above 23,000

SEPTEMBER SAW SLIGHTLY MORE HOME BUYING

Existing home sales advanced 0.7% last month, according to a National Association of Realtors report. This gain broke a 3-month streak of retreats. Single-family home sales rose 1.1%. Housing inventory increased 1.6% last month, but it was still 6.4% under year-ago levels.1

GROUNDBREAKING FALLS TO A 12-MONTH LOW

Housing starts slumped 4.7% in September, the Census Bureau reported last week. Building permits also declined, decreasing 4.5%. Fall hurricanes may have slowed construction activity, but investment in homebuilding was also down 7.3% year-over-year during the second quarter.2

DOW SURGES ABOVE 23,000; GOLD DROPS

Across last week, the Dow Industrials climbed

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Hurricanes Hurt September Job Numbers

HURRICANES HURT SEPTEMBER JOB NUMBERS

For the first time in seven years, the economy went a month without payroll growth. The Department of Labor’s September employment report revealed the impact of Hurricanes Harvey and Irma: it showed 33,000 fewer people working. Average hourly wages rose 0.5% to take the annualized gain to 2.9%, but this may have been an effect of the net loss of 105,000 lower-paying bar and restaurant jobs. In a statistical fluke, the headline jobless rate fell to 4.2%, and the U-6 rate, counting the underemployed, declined to 8.3%, even as slightly more Americans looked for work.1

ISM FACTORY PMI TOPS 60

Rising 2.0 points for September, the Institute for Supply Management’s factory purchasing manager index hit 60.8, its best mark since May 2004. ISM’s service sector PMI also made a nice leap in September, ascending 4.5 points to 59.8, its highest result since August 2005. Analysts polled by the Wall Street Journal expected the services PMI to tick down to 55.2 last month.2

OIL HAS FIRST DOWN WEEK IN MORE THAN A MONTH

WTI crude settled at $49.29 on the NYMEX Friday, slipping 4.6% lower for the week. While Tropical Storm Nate put a drag on Gulf Coast oil production, traders also sensed OPEC members may retain caps on crude output through 2018.3

STOCKS START THE QUARTER WITH GAINS

Blue chips set the pace

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