Market Perspective December 4, 2017

The rotation to finance continued Monday. SPDR Financials (XLF) climbed more than 2 percent at the open and closed with a 1.52 percent gain. while SPDR Technology (XLK) slid more than 1.6 percent. Materials, industrials, consumer staples and consumer discretionary also rallied. The Dow Jones Industrials led major indexes. The Dow Jones Transportation Index jumped nearly 2 percent.

The House and Senate versions of tax reform bills will be merged into a final bill that could be on the President’s desk before Christmas. The final corporate tax rate could be as high as 22 percent, but it will represent a significant cut from the current top rate of 35 percent.

Companies that do most of their business in the United States derive the greatest benefit from these cuts, as will banks, homebuilders, truckers, utilities, retail, materials, air transportation and insurance. Over the past six trading days, the S&P 500 has gained about 2 percent.

Factory orders in October slipped 0.1 percent, but beat expectations of a larger decline. Tomorrow the service PMIs will be out. Wednesday will bring revised third-quarter productivity numbers and the ADP employment report for November. The Bureau of Labor Statistic’s employment report will be out on Friday. Economists forecast 204,000 new jobs and a 4.1 percent unemployment rate.

Overseas data will include Chinese trade and inflation figures for November, Canadian housing starts, plus Australian and Japanese third-quarter GDP growth. The Bank of Canada will meet on Wednesday. No interest policy change is expected. Britain reached a border deal with Ireland on Monday. It was a potential sticking point for Brexit.

CVS Health (CVS) will buy health insurer Aetna (AET) for $68 billion to stave off the competitive threat from Amazon (AMZN). In October, Amazon acquired a pharmacy license.

Crude oil opened the week at $58 a barrel and slipped to $57 on Monday. Crude has spent the past month bouncing between $55 and $59 a barrel.

The U.S. Dollar Index rose on Monday as currency markets also priced in the likely passage of tax reform. Odds of a Federal Reserve rate hike in March rose from near 50 percent on Friday to more than 60 percent on Monday.

Autozone (AZO), Toll Brothers (TOL), Broadcom (AVGO), American Eagle Outfitters (AEO), lululemon (LULU), H&R Block (HRB) and Dollar General (DG) will report earnings this week.

 

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