Markets enjoyed another month of strong gains, boosted by encouraging economic data and hopes surrounding tax reforms. Additionally, the Fed chose not to hike rates in November and offered a positive view about the U.S. economy. Significant progress was made on President Trump’s much-vaunted tax legislation. Ultimately, the House of Representatives finally passed the much awaited tax cuts legislation now named as the Tax Cuts and Jobs Act.
For the month of November, the Dow, the S&P 500 and the Nasdaq surged 3.87%, 2.8% and 2.2%, respectively. The blue-chip index posted its eighth consecutive month of gains — the highest streak of gains in the last 22 years. Meanwhile, the S&P 500 also posted eight straight months in gains. The last time around when the S&P 500 had achieved such a feat was way back in 2007. The indexes have gained in the range of 18% to 28% so far in 2017.
The Fed chose not to hike rates in November and offered a positive view about the U.S. economy and said that it has been improving at a "solid rate." On Nov 16, the House finally passed the Tax Cuts and Jobs Act. Finally, The Federal Open Market Committee (FOMC) minutes indicated that a rate hike was almost certain in December, but stated that only one or two rate hikes are likely in 2018.
Encouraging Domestic Data
Economic data released during November was largely encouraging. ISM Services Index increased from 59.8% to 60.1% in October, reaching its best settlement since August 2005. Construction spending increased 0.3% to $1.22 trillion in September, up from 0.1% in August. Retail sales for October increased a meager 0.2%, but exceeded the consensus estimate.
Industrial production for October surged 0.9%, surpassing the consensus estimate of 0.6%. PPI for October came in at 0.4%, in line with the previous month’s figure. Core CPI for October came in at 0.2%, up from 0.1% in September. Factory Orders increased by 1.4%, exceeding the consensus estimate of 1.3%. Consumer spending surged 0.3% in October, in line with the consensus estimate for the period.
However, PCE Inflation for October came in at 0.1%, below the previous month’s figure of 0.4%. Additionally, the ISM Manufacturing Index came in at 58.7 in October, down from 59.8 in September. Also, durable orders declined 1.2% in October.
Housing Sector Picks Up
As the impact of hurricanes Irma and Mathew receded, homebuilding picked up in the United States. Building permits increased 5.9% to 1.3 million units in October. Moreover, housing starts jumped 13.7% to 1.3 million units last month — the highest level since October 2016. The consensus estimate for the period was 1.2 million units. Moreover, the index of home builder sentiment touched an eight-month high in November. (Read: Housing Starts Rebound Post Hurricanes: 4 Top Picks)
Additionally, sales of new single-family houses in the United States increased 6.2% to a seasonally adjusted annual rate of 685,000 in October. This marks the biggest percentage gain since January 1992. (Read: Housing ETFs to Buy in 2018)
Further, existing homes sales rose 2% in October from September to a seasonally adjusted rate of 5.48 million. Meanwhile, pending home sales for the month of October increased 3.5%, surpassing the consensus estimate of 2% growth.
Q3 GDP Exhibits Highest Rate of Growth Since 2014
According to the second estimate from the Department of Commerce, the gross domestic product of the United States expanded at an astounding 3.3% in the third quarter of 2017. This also marks it fastest pace of growth since the third quarter of 2014.
Meanwhile, consumer spending, the biggest contributor to economic growth advanced 2.3% in the 3Q17. Further, spending on business equipment shot up 10.4% in the period, also notching up a three-year high. Meanwhile, corporate pre-tax profits have surged 5.4% year over year.
Unemployment Hits 17-Yr Low, Job Additions Rise
The United States created 261,000 jobs in October, which came as a breather after only 18,000 job additions in September. Employment in key sectors like food services and drinking places, and professional and business services contributed to last month’s job creations. Employment in food services and drinking places created 89,000 jobs in October, after losing 98,000 jobs in September. Also, professional and business services added 50,000 jobs. However, October’s job additions were below the consensus estimate of 297,000 job additions.
Additionally, average hourly wages remained mostly flat in October, which came lower than the consensus estimate of a gain of 0.2%. Meanwhile, in October the unemployment rate came down from 4.2% to 4.1%, lower than the consensus expectation of 4.2%. This is the lowest pace recorded since December 2000.
Two Versions of New Tax Bill Emerge
On Nov 2, Republicans of the House finally unveiled a detailed tax cut policy under the Tax Cuts and Jobs Act which seeks to reduce corporate and revoke the taxes paid by large businesses. The tax bill reduces the corporate tax rate to 20%, making it the permanent rate.
On Nov 9, another version of the tax plan was released by the Senate Finance Committee. The Senate version differed from that of the House panel's in several ways. For instance, unlike the House Republicans’ tax proposals which focus on reducing corporate tax rate from 35% to 20%, the Senate version supports a similar tax cut only by 2019.
Such a confused state of affairs dampened investor sentiment. Moreover, market watchers speculated that no formal decision was likely on the tax Bill before Thanksgiving. Such fears weighed heavily on the broader markets.
House of Representatives Passes Cuts
On Nov 16, House of Representatives finally passed the much-awaited tax cuts legislation. This takes President Trump and his team one step closer toward realizing their most important agenda — tax reforms.
Ultimately, in a 12-11 vote on Nov 28, the Senate Budget Committee advanced the Tax Bill proposed by the members of the GOP. Senators Bob Corker and Ron Johnson also voted in favor of the Bill. Senator John McCain also stated that he would vote in favor of the Bill.
Black Friday Sales Push Retailers Higher
Holiday shopping continued even after Black Friday, eventually boosting gains for retailers. Per the report from Adobe (ADBE - Free Report) , Black Friday sales of online retailers totaled a whopping $5.03 billion. Online retail giant Amazon (AMZN - Free Report) edged up 0.8% on Nov 27 and posted its fourth consecutive record finish in as many trading sessions.
Meanwhile, retailers like American Eagle Outfitters (AEO - Free Report) , Dillard’s Inc. (DDS - Free Report) and Gap Inc.(GPS - Free Report) all increased 1.8%, 4.7% and 1.21%, respectively. On the other hand, fast food retailer Chipotle Mexican Grill Inc. (CMG - Free Report) lost 1.8% and toy makers like Hasbro (HAS - Free Report) and Mattel MAT declined 1% and 1.5%, respectively.
Fed Refrains from Rate Hike, Powell to Be Next Fed Chair
Markets gained traction on Wednesday after the Fed decided not to raise the benchmark interest rates and offered a positive view about the U.S. economy. At the end of its two day meet, the Fed stated that the U.S. economy has been growing at a "solid rate" compared to a "moderate rate" in September.
Although, the Fed kept the interest rate unchanged in the range of 1% to 1.25%, it indicated that there is a huge possibility of a hike in rate in December. Meanwhile, a minority of policymakers maintained that the rate hike should be kept on hold till the inflation target of 2% is met.
Meanwhile, President Trump appointed member of the Federal Reserve Board of Governors Jerome Powell as Janet Yellen’s successor post the expiration of her term as Fed Chief in February.
In the minutes of Oct 31-Nov 1 FOMC policy meeting, Fed officials clearly hinted at a December rate hike. However, some policymakers showed concerns over “persistent” slowdown in inflation and indicated that the central bank may scale back to one or at two rate increases next year, which was lower than the previously expected three rate hikes.
5 Star Performers for November
I ran a screen on Research Wizard for companies with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today):
1. Percentage price change over the last 4 weeks greater than or equal to 20% (As of Nov 30, 2017)
2. Forward price-to-earnings ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
3. Expected earnings growth for the current financial year greater than or equal to 20%
4. Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.
(See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).
Here are the top 5 stocks that made it through this screen:
SORL Auto Parts, Inc. (SORL - Free Report) specializes in the development, production and distribution of air brake valves and hydraulic brake valves.
Price gain over the last 4 weeks = 53.2%
Expected earnings growth for current year = 58%
SORL Auto Parts holds a Zacks Rank #1 (Strong Buy). The stock has a P/E (F1) of 4.54x.
Westell Technologies, Inc. (WSTL - Free Report) is a designer and distributor of telecom products for telephone companies in the United States.
Price gain over the last 4 weeks = 43.6%
Westell Technologies holds a Zacks Rank #1 and its expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 18.17x.
Amerigo Resources Ltd. (ARREF - Free Report) through its subsidiary, is engaged in producing and selling copper and molybdenum concentrates primarily in Chile.
Price gain over the last 4 weeks = 31.5%
Amerigo Resources has a P/E (F1) of 13.83x and its expected earnings growth for the current year is more than 100%. The stock holds a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Daqo New Energy Corp. (DQ - Free Report) is engaged in the manufacture and sale of high-quality polysilicon to photovoltaic product manufacturers.
Price gain over the last 4 weeks = 29.3%
Expected earnings growth for current year = 43.3%
Daqo New Energy holds a Zacks Rank #1. The stock has a P/E (F1) of 7.93x.
The Children's Place, Inc. (PLCE - Free Report) is the largest pure-play children's specialty apparel retailer.
Price gain over the last 4 weeks = 25.8%
Expected earnings growth for current year = 38.8%
The Children's Place holds a Zacks Rank #2 (Buy). The stock has a P/E (F1) of 17.61x.
Will Benchmarks Breach more Records in December?
Speculation surrounding the passage of tax cuts proposals has had investors worried for most of last month. However, with both the House of Representatives and the Senate passing tax proposals, markets can now breathe easy. In fact, companies from the United States stand to gain substantially once these proposals are implemented. Given such a state of affairs, stocks are likely to move even higher before the year comes to a close.
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