December 20, 2017

Stocks opened mixed this morning (Dow +16 pts; SPX flat). Utilities and real estate are down for the second straight session, and consumer staples about-faced to fall .7%. Telecoms are the best performing sector at the moment, up 1.5%, likely because they will really benefit from lower corporate taxes. Energy, materials and industrials are also trading higher. European stock markets will close in the red and Asia was mostly down overnight. The dollar is a bit weaker today against a basket of foreign currencies and commodities are not surprisingly trading higher. WTI crude oil is up slightly to trade around $57.80/barrel. Bonds are again selling off, with yields higher. And again, this is probably the biggest story of the day. The 5-year Treasury yield spiked to 2.24% and the 10-year yield rose to 2.49%, breaking out of its recent trading range. Importantly, the yield curve has steepened over the last two trading sessions. That is, the difference between the 2-year and 10-year Treasury note yields has increased from 51 basis points to 62 basis points. When longer term rates rise faster than short term rates, it is a signal of rising inflation expectations. 

US existing home sales rose 5.6% in November from prior month levels to an annualized rate of 5.81 million units. That’s the highest rate of sales activity in 11 years. Economists expected a much lower figure. On a year-over-year basis, existing home sales are up about 3.8%, which is pretty healthy. The National Association of Realtors points out, however, that there is a still a chronic shortage of single-family homes on the market, especially at the lower end, and many would-be first time home buyers are priced out of the market. This is especially true in the West, where home sales actually declined. The median home price has been rising at 5-6% y/y vs. the longer term average of about 3-4%. And we know that wage growth in the US hasn’t kept pace with home price growth. 

The US Senate has passed—with a party-line vote—its tax reform bill. Next, the House of Representatives plans to vote on the same bill this week. It could be on the president’s desk by Friday. You may remember the House already voted on its bill this week, but that vote was effectively nullified because the bill contained three small provisions that under procedural rules can’t be considered by the Senate. And, of course, each chamber must vote on the exact same bill in order to then send it to the president. Nonetheless, it seems destined for passage. 

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