Trend Should Remain Our Friend

The major market indices finished the week solidly higher reflecting optimism around the passage of tax reform, a slightly more ‘dovish’ than expected update from the Fed, and a report showing retail sales surged during the month of November.

December 18, 2017    |    By Mike Schwager

Performance for Week Ending 12/15/17:

The Dow Jones Industrial Average (Dow) added 1.33%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.79%, the Standard & Poor’s 500 Index (S&P 500) tacked on 0.92% and the Nasdaq Composite Index (NASDAQ) rose by 1.41%. Sector performance was positive with 7 of the 11 S&P groups finishing higher. The Telecom sector (+4.01%) was the best performer while Utilities (-0.65%) was the worst.

Index* Closing Price 12/15/17 Percentage Change for Week Ending 12/15/17 Year-to-Date Percentage Change Through 12/15/17
Dow 24651.74 +1.33% +24.74%
Wilshire 5000 27734.32 +0.79% +18.39%
S&P 500 2675.81 +0.92% +19.52%
NASDAQ 6936.58 +1.41% +28.86%

*See below for Index Definitions

MARKET OBSERVATIONS: 12/11/2017 – 12/15/17

The major market indices finished the week solidly higher reflecting optimism around the passage of tax reform, a slightly more ‘dovish’ than expected update from the Fed, and a report showing retail sales surged during the month of November. With consumer spending representing two-thirds of the US economy, the data suggests that the fourth quarter is on track to deliver solid growth.

FOMC Meeting: As expected, the Federal Open Market Committee (FOMC) boosted rates by a quarter percent last week to a range of 1.25 – 1.50%. The committee cited the economy's faster-than-expected growth in recent months and strong job creation. They noted that inflation, which continues to run below their 2% target, is likely to firm as a tightening labor market should create the demand necessary to raise prices. The closely watched “dot-plot” continued to indicate three rate hikes next year, unchanged from the September update, but dovish in the sense that many economists were expecting an upgrade to four hikes.

Market View – Expect More Of The Same In 2018: As we look forward, it seems reasonable to expect that the favorable market momentum will carry over into the New Year. As we have been saying throughout most of 2017, at the end of the day it’s fundamentals (the economy, earnings, interest rates) that matter, and from a macro point of view, the world is in the midst of a period of synchronized global growth, which has resulted in growing confidence in the earnings outlook. These trends are likely to remain in place in the quarters ahead. The US economy appears to be on track for a third consecutive quarter of 3%-plus growth while consensus expectations from Bloomberg call for 13% earnings growth in 2018. In the near-term, inflation is likely to stay relatively muted which in turn should keep the Fed on a gradual rate hike path. While valuation levels are certainly elevated, they are far from extreme and seem somewhat justified in light of the low levels of inflation, stability in the economy, and strong levels of profitability.

The markets have had an incredible run over the course of the past 12-plus months and it wouldn’t be surprising to see a meaningful correction at some point in the coming months. However, assuming that macro fundamentals remain unchanged, a pullback would be viewed as healthy and an opportunity to add equity exposure to portfolios. In terms of upside, valuation levels are not likely to expand from current levels, therefore earnings growth will likely be the determining factor in gauging performance potential. If analysts are relatively close to their current forecast, we can expect another decent year ahead.

The Week Ahead: Tax reform will be the focal point in the week ahead with the Senate expected to vote during the early part of the week followed by a mid-week vote by the House. The earnings calendar will tip-toe back into the picture this week with just under a dozen members of the S&P 500 scheduled to release results. The data calendar will be back end loaded with the bulk of economic releases coming on Thursday and Friday. Reports of interest include; November housing starts and building permits, November existing home sales, the final revision to third-quarter GDP, the Philly Federal Reserve’s December business outlook survey, November durable goods orders, November new home sales and the University of Michigan’s December consumer sentiment survey.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

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