If you enjoy following central banks, this week is a little like going to an All-Star game. The Federal Reserve, the ECB, the Bank of England, the Swiss National Bank, and the Norges Bank have all held meetings and only one bank -- the Federal Reserve -- voted to raise its key policy rate.
The market's focal point with respect to the Fed's decision wasn't on the interest rate hike (it was widely expected). Rather, it was on the understanding that the dot plot didn't show a change in the projection for three rate hikes in 2018.
Many participants thought the Fed might at least bump up its rate-hike projections for 2018 in light of the improving economy and the potential for increased stimulus from anticipated tax cuts. The latter, incidentally, are reportedly moving closer to happening as some ranking GOP members have indicated a compromise on the tax bill appears to have been struck.
A final bill, which would feature a cut in the corporate tax rate to 21% starting in 2018, could be presented as early as tomorrow, setting the stage for an historic vote and an eventual signing by the president before Christmas.
That hopeful consideration has kept the stock market propped up all year and it has certainly engendered some glad tidings in recent weeks that have manifested themselves in record highs for the major indices.
It hasn't been all about tax cuts, however. Strikingly, all of the elements of support -- friendly monetary policy, tax relief, M&A transactions, good earnings news, share buyback activity, and upbeat economic data -- have all coalesced this morning.
In the interest of brevity:
- The ECB left its key interest rates unchanged and reiterated that it will reduce its asset purchases to €30 billion per month starting in January and continuing through September 2018, or beyond, if necessary. The bank also reiterated that it stands ready to increase its accommodation if necessary. This decision was made shortly after it was reported the flash manufacturing PMI for the eurozone hit a record high of 62.0 in December.
- The Bank of England voted unanimously to leave its key rate at 0.50% and its asset purchase program at £435 billion
- It has been confirmed that Disney (DIS) will acquire select assets of 21st Century Fox (FOXA) for approximately $52.4 billion in stock
- Industrial company Danaher (DHR) issued in-line guidance for its fiscal year and said its strong cash flow performance in 2017 positions it well for future capital deployment
- Humana (HUM) announced a new $3 billion share repurchase program; and
- The Retail Sales report for November and the latest weekly initial claims report were better than expected
In terms of retail sales, they increased 0.8% (Briefing.com consensus +0.3%) on top of an upwardly revised 0.5% increase (from +0.2%) in October. Excluding autos, retail sales jumped 1.0% (Briefing.com consensus +0.6%) on top of an upwardly revised 0.4% increase (from +0.1%) for October.
The retail sales strength was widespread, led by sales increases at gasoline stations (+2.8%) and nonstore retailers (+2.5%). The only pocket of weakness was motor vehicle and parts dealers sales (-0.2%).
The key takeaway from the report is that there was healthy spending activity across discretionary categories, which is consistent with a consumer feeling good about their income prospects.
Part of that confidence flows from the tightness in the labor market, which has promoted good feelings about job security. Those feelings were solidified this morning in the report that initial claims for the week ending December 9 decreased by 11,000 to 225,000 (Briefing.com consensus 239,000) while continuing claims for the week ending December 2 dropped by 27,000 to 1.886 million.
The latest week marks the 145th straight week initial claims have been below 300,000.
It was also reported that import prices increased 0.7% in November while export prices increased 0.5%. Those monthly gains left import prices up 3.1% year-over-year, versus up 0.2% for the 12 months ending November 2016, and export prices up 3.1% year-over-year, versus down 0.2% for the 12 months ending November 2016.
Notwithstanding the compendium of favorable developments for the stock market this morning, the S&P futures are up just two points, the Nasdaq 100 futures are up 10 points, and the Dow Jones Industrial Average futures are up 35 points.
Those modest gains aren't to be construed as a sign of not being encouraged by today's news. If anything, they suggest many market participants have come to expect it and that it has been largely reflected in stock prices already.
Nevertheless, the move to take profits continues to be limited and that absence of sellers continues to press on the sentiment of sidelined participants who are fearful about missing out on further gains, which one can include as another element of support that has helped drive the stock market higher in 2017.