The holiday shortened Thanksgiving week came with a light economic calendar, little meaningful market related news, and another all-time high for the S&P 500. As Strategas pointed out last week, global growth is making politics digestible now. U.S. and international equity markets posted gains last week with U.S. market gains concentrated in technology and telecom sectors (net neutrality debate).

Market Anecdotes

  • The 2yr/10yr yield spread fell further this week as short rates edged higher and long rates fell slightly. The 0.60% spread has the yield curve at its flattest level since 2007.
  • The Senate released its 515-page tax bill on Tuesday with hopes to hold a vote within the next two weeks.
  • The U.S. Chamber of Commerce has started to voice some real concerns with the White House as they continue to play hard ball with NAFTA.
  • If we had a bitcoin every time someone mentioned how reliant the S&P 500 rally has been on strong technology stock performance, we be a wealthy clan. Interestingly and somewhat surprisingly, the emerging market index now has a higher tech stock weighting than the S&P 500, 23% to 26.5%.
  • The decade old ‘net neutrality’ debate resurfaced this week with expectations of a rollback of 2015 rules mandating nondiscriminatory bandwidth allocation for content providers. This has potential implications for both consumers and corporations (tech and telecom) alike.
  • The ECB QE program took its balance sheet to a new record high of €4.4 trillion, equal to 40.9% of Eurozone GDP last week, leaving no doubt the foot remains firmly on the accelerator in the Eurozone.
  • Slowed production growth from U.S. shale and quota constrained OPEC exports have taken U.S. oil inventories down below levels at this time last year. Prices have jumped from $42 to $59 since mid-year in response. Oil gained 4.25% last week to close at $58.97.
  • The oil futures curve moved further into backwardation in response to the Keystone pipeline spill on November 19th and subsequent shutdown. ‘Backwardation’ is when future calendar prices trade at lower prices than front month prices – indicative of a market that believes inventory draws and demand backdrop of today will eventually ease.
  • Passed over for a second term, Janet Yellen announced she will resign from the Fed Board of Governors effective with the swearing in of her successor. Yellen has been with the Fed for the better part of three decades and her term as governor was set to expire in 2024. In addition to Fed Chair Powell and Vice Chair of Supervision Quarles, Trump will appoint a Vice Chair and three Governors.

Economic Highlights

  • October existing homes sales increased 2% m/m, beating expectations. Pending sales have been flat to negative as well, adding to the constructive takeaways for the housing market.
  • Durable goods orders failed to increase for a third consecutive month, falling 1.2%, but are up 1% y/y and ex-transportation results revealed an encouraging 0.4% gain.
  • The University of Michigan consumer sentiment reading held steady near expansion highs of 98.5. Constructive sentiments on income, employment, and benign inflation remain intact.
  • Markit’s Manufacturing PMI fell to 53.8 from 54.6 and the Services PMI fell to a four-month low of 54.7 from 55.3. Readings above 50 indicate expansionary readings.