The Federal Reserve hiked short-term borrowing costs .25% this week to 1.5%, with the prospect of another two or three next year. Equities took the expected event in stride. As Congress got closer to agreement on a tax overhaul bill, all three market averages finished the week at record levels. The Dow Industrials gained over 322 points or 1.3%; the S&P 500 moved higher by nearly 1%; and the NASDAQ climbed 1.4%. The rise was broad-based with all but utilities and oil & gas stocks in the green. Telecom was the clear winner with a nearly 3.5% gain, followed by technology and consumer stocks.
Along with the Fed, the People’s Bank of China raised rates and the European Central Bank will probably not be far behind from making a move. Another positive sign for equities is the uptick in mergers and acquisitions, especially in the highly contested media space. And with brick and mortar stores losing market share to online shopping, consolidation in the retail REIT space is heating up. Reports are showing that manufacturing and non-manufacturing are holding up nicely, as are consumer confidence, machine tool orders and new home purchase mortgage applications. In all, this three-month span is likely to mark the third quarter in a row in which GDP rises by 3%, or more.
It certainly has been a strong year for stocks as we head into the final weeks of 2017. The Dow is ahead about 24% for the year as is the NASDAQ, and the S&P 500 by over 17%. And with the news still good, there may be room for more gains next year, especially when the effects of a 21% corporate tax rate start to find their way to the bottom line and provide U.S. companies with a more even playing field in the competitive international marketplace.
On a sad note – and to follow-up on Friday’s posting on CSX – the company announced late Saturday that CEO E. Hunter Harrison passed away following sever complications from a recent illness. Board Chairman Edward Kelly went on to say: “The CSX team will capitalize on the changes that Hunter has made” and “the Board will continue to consider in a deliberative way how best to maximize CSX’s performance over the long term.” The shares, which suffered a 7.6% drop on Friday, will certainly continue to fall on the news, but once investors feel more comfortable with Harrison’s protégé and acting CEO Jim Foote at the helm, the shares may present a good long-term buying opportunity.
Here is the answer to last week’s trivia question: Iconic chocolate syrup Bosco, formulated in Camden, New Jersey in 1928, is a product of? The J.M. Smucker Co., Bosco Products, Inc., The Hershey Co. or Unilever, N.V. Answer: Bosco Products, Inc. after purchasing the brand from Corn Products International in 1985.
Today’s Trivia Question: The Computing-Tabulating-Recording Co., founded in 1911 in Endicott, NY, is now? Texas Instruments, Inc., International Business Machines Corp.(IBM), Automatic Data Processing, Inc. (ADP), or HP, Inc. (formerly Hewlett-Packard).