Investment Commentary –December 21st, 2016

Market Indices as of Market Close December 21st, 2016
Dow 19,941 (14.44% YTD)
S&P 2,265 (10.85% YTD)
NASDAQ 5,471 (9.27% YTD)
Gold $1,133 (52 Week Low $1,066 High $1,387)
OIL $52.53 (52 Week Low $35.10 High $55.44)
US 10Y Treasury 2.54 (52 Week Low 1.32 High 2.64)

Dow 20,000 in sight, but stock market struggles for momentum

U.S. stocks pulled back slightly on Wednesday as the “Santa rally” that has pushed equities to records stalled for the moment, keeping the Dow Jones Industrial Average DJIA, -0.16% just short of the 20,000 milestone. The blue-chip index DJIA, -0.16% fell 18 points, or 0.1%, to 19,956, retreating from a fresh all-time high set Tuesday.

The S&P 500 index SPX, -0.25% lost 3 points to 2,267, a decline of 0.1%, with six of its 11 main sectors trading higher.

Losses in health care, technology and financials outweighed gains in so-called defensive sectors, such as utilities and consumer staples on Monday. Meanwhile, the Nasdaq Composite Index COMP, -0.23% slipped 6 points, or 0.1%, at 5,477, weighed down by a decline in biotechnology shares. The iShares Nasdaq Biotechnology ETF IBB, -1.13% was down 0.6%.

Both the Dow and the Nasdaq closed at records on Tuesday, their latest in a series of all-time highs. However, the equity gains have been so swift and broad—the S&P is up 6% since the election—that many wonder whether the move has gotten ahead of itself. Wall Street has been in rally mode since the U.S. presidential election, with investors betting that the pro-business policies of President-elect Donald Trump will spur faster economic growth.

U.S. home resales unexpectedly rose in November, reaching their highest level in nearly 10 years, likely as buyers rushed into the market to lock in low interest rates in anticipation of further increases in borrowing costs.

The third straight monthly increase in existing home sales, reported by the National Association of Realtors on Wednesday, suggested housing would contribute to economic growth in the fourth quarter after being a drag in the previous two quarters.

Existing home sales increased 0.7 percent to an annual rate of 5.61 million units last month, the highest sales pace since February 2007. October’s sales pace was revised down to 5.57 million units from the previously reported 5.60 million units.

Economists had forecast sales slipping 1.0 percent toa 5.50 million-unit pace in November. Sales were up 15.4 percent from a year ago. They rose in the Northeast and South, but fell in the Midwest and West last month. Mortgage rates have surged in the wake of Donald Trump’s victory in the Nov. 8 presidential election. Trump’s proposal to increase infrastructure spending and slash taxes is seen as inflationary.

Since the election, the fixed 30-year mortgage rate has increased about 60 basis points to an average 4.16 percent, the highest level since October 2014, according to data from mortgage finance firm Freddie Mac.

Mortgage rates are expected to rise further after the Federal Reserve raised its benchmark overnight interest rate last week by 25 basis points to a range of 0.50 percent to 0.75 percent. The U.S. central bank forecast three rate hikes next year.

On this day in 1908 Andrew Carnegie appears before Congress to speak against tariffs that they are proposing, to say that America can remain competitive without them.

On Tap for Next Week
Next week’s notable financial news will include Jobless claims data as well as Bloomberg’s Consumer confidence index findings.
Happy Holidays to you and your family from Affinity Asset Management!

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.