Overall this was a relatively quiet week with the market’s attention focused skyward Monday on the solar eclipse, westward Thursday for the Jackson Hole central bank symposium, and southward Friday on inbound hurricane Harvey. U.S. and international equities tallied respectable gains with smaller cap stocks outperforming large caps, a rare occurrence in 2017 driven by the weak U.S. dollar and fluctuating prospects for tax reform. Politically, market friendly chatter surrounding tax reform and market unfriendly chatter regarding the border wall pulled markets in opposite directions on the week.

Weekly Anecdotes:

  • In the true spirit of Cliff Clavin, know that stocks have returned an average of 17.2% in the 12 months following a solar eclipse, according to LPL Financial. In the same spirit, Treasury Secretary Steve Mnuchin visited the approximately $200b of gold stored at Fort Knox and noted “The last time anybody went in to see the gold, other than the Fort Knox people, was in 1974 when there was a congressional visit. And the last time it was counted was actually in 1953.”
  • The yield curve flattened further with short rates (2yr) rising and long rates (10yr) falling. Year to date 1 and 2year U.S. treasury yields have risen 38 and 15 basis points while 10 and 30-year yields have fallen 28 and 31 basis points respectively.
  • Market technicals are looking a little wobbly. The S&P 500 failed to close above its 50-day moving average for a third straight week, the longest such streak since before the election. Also, less than half of S&P 500 stocks are now trading above their 200-day moving average.
  • For all the political banter surrounding a government shutdown, Sun Trust Advisory Services noted that there have been 18 shutdowns since 1976, all relatively short lived, with the S&P 500 dropping an average of 0.6%, a minor concern.
  • The U.S. dollar fell sharply last week, particularly against the Euro and the Swedish kronor. Continued Euro strength is expected to weigh on export centric Eurozone at some point.
  • The Euro’s 12% appreciation against the dollar reflects seven of nineteen (35%) Eurozone countries running at or above 2% core inflation. Above average growth is also a factor with 68% of Eurozone countries leading economic indicators over the 100 mark.
  • In a nod to the market’s embrace of deregulation, Bloomberg reported the six largest banks will reap $27b in cost savings and a 20% increase in annual pre-tax income due to deregulation in areas such as softer bail-in requirements, lower compliance costs, broadened definition of liquidity, and more lenient leverage calculations. A study last year by the Competitive Enterprise Institute argued the cost of regulation to businesses exceeds what they pay in taxes.
  • The industrial metals complex is confirming confidence in global growth and reflecting the weakening USD. Copper hit its highest level since November 2014, Zinc is at a 10yr high, aluminum is at a 3yr high, and iron ore is up 35% since May.

Economic Updates:

  • New home sales, existing home sales, and the FHFA housing price index all missed expectations last week. That said, the housing market is not a big concern at this point with prices up 7% YoY and no signs of weakening demand.
  • Weekly jobless claims came in below 250k for the 12th consecutive week and below 300k for 129th consecutive week – the latter being one of the most remarkable economic streaks we’ve seen in decades.
  • Strong consumer sentiment was confirmed this week as the Bloomberg Consumer Comfort Index hit a 16-year high, taking out the 2007 highs but still well below the late 1990’s all-time record