November 30, 2017

Stocks gapped up at the open, reversing yesterday’s decline and setting new highs. The Dow is currently up 181 pts and the SPX is up .67%. The energy sector is rebounding about 1% after a 5% correction earlier this month. Semiconductors are also up 1% after suffering a 5.7% drop over the last few days. Interestingly, European and Asian stock markets were down overnight. And the VIX Index (Dec. futures contract) is trading up near 11.5. The dollar is weaker against a basket of foreign currencies today, mostly due to Euro & Pound strength after Brexit negotiators made constructive progress toward a split. Commodities are mixed; WTI crude is trading up around $57.70/barrel. OPEC meets today in Vienna. Bond yields are slightly higher on the day. The 5-year Treasury yield is up to 2.11% and the 10-year is now at 2.39%. 

CVS Health (CVS) is apparently very close to announcing a deal to acquire Aetna (AET) for about $66bil. According to the Wall Street Journal, the two companies are working out final details but the price per share would likely be around $200 to $205. Following this report, CVS shares shot up 4% and Aetna shares rose 1%. 

We’re moving closer to “tax reform.” The full Senate could vote on its bill by the end of the week. Senator John McCain indicated he will vote in favor of it. If corporate tax rates are reduced to 20%, you’re going to see significantly higher profits for US companies in 2018. Wall Street analysts have already begun to gradually raise earnings estimates. At the moment, analysts’ consensus forecast is for 10% aggregate earnings growth for the S&P 500 next year.  

October’s Personal Income & Spending report was marginally positive. Income growth accelerated to 3.4% y/y, the highest since March. Barron’s says, “Inflation is showing the slightest bit of life yet probably more than enough to assure a rate hike at this month’s FOMC.” The Fed, by the way, closely watches this report’s core inflation gauge, which held steady at a very tame 1.6% y/y. So while overall inflation in the economy isn’t really accelerating, wage growth is. Consumer spending held steady at 2.6% y/y growth. That’s OK, but it’s not accelerating. 

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