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After The Close - Wall Street didn’t miss a beat on Friday ahead of a three-day holiday weekend, and as earnings season got under way. Stocks rose strongly as companies reporting fourth-quarter 2017 results provided early confirmation that the optimism surrounding recent changes in the tax code will create bottom-line benefits going forward.

Big banks, including Dow Jones Industrial component JPMorgan Chase (JPMFree JPMorgan Chase Stock Report), kicked off the reporting season. The lender had numerous nonrecurring items that muddied the waters as to just how well it performed. Absent one-time charges, though, earnings topped estimates. An important takeaway was that a significantly lower effective tax rate will mean higher future profits.

That is just what investors have been waiting to hear. The stock market is enjoying one of its best starts ever on the feeling that similar good news is ahead.

Meanwhile, the day’s economic data provided a broadly positive view of business conditions. As expected, retail sales were healthy in December. The National Retail Federation indicated that holiday sales turned in their best gain in seven years.

This morning’s consumer price inflation (CPI) figures, as reported by the Labor Department, were more complicated, with the headline number for December coming in tame, but the so-called core rate of inflation higher than expected. Core inflation excludes volatile food and energy prices that can skew readings, and is given more weight by policy makers.

Core inflation was also higher than projected on full-year basis, and the thinking is that overall price levels will rise sufficiently in 2018 to allow the Federal Reserve to raise interest rates as many as three times.

Longer-term rates saw the yield on the 2-year Treasury note rise above 2.00% for the first time since 2008, while the benchmark 10-year Treasury note climbed to its highest point this week.

If continued, the trend toward higher inflation and interest rates could cause some volatility for stocks down the road, assuming yields on bonds and cash become a more attractive alternative to investors than they have been for a number of years.

Stocks for now remain in a notable upturn, with the Dow Industrials, NASDAQ, and S&P 500 surging 228 points, 49 points, and 19 points, respectively, to close the week.

Earnings season will resume on Tuesday. The stock and bond markets are closed on Monday for the Martin Luther King Jr. federal holiday. - Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned.


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Before The Bell - Another day, another surge for the Dow Jones Industrial Average. In fact, that could be the lead headline for nearly every market session so far this year, as that 30-stock index jumped by more than 100 points in the first hour of trading alone yesterday. Behind this continuing strong performance are high earnings expectations, abetted further by the implementation of the recent tax overhaul and expectations that the economy will continue to press ahead nicely. Underscoring this optimism, two large economically sensitive blue chips, Boeing (BA Free Boeing Stock Report) and Caterpillar (CAT Free Caterpillar Stock Report), again led the bullish charge.

Interestingly, both stocks were among the market leaders last year, galloping ahead strongly in 2017 on economic optimism. As to earnings, the latest expectation is that results improved by just over 10% in the recently ended three months. The large Dow gain, meantime, sent that index to yet one more all-time high, while the NASDAQ, also up decisively, likewise reached a record high. In all, energy and basic materials were the best performing categories, while health care and utilities were largely flat as the morning drew to a close. Interestingly, in addition to last year's stalwarts, a few 2017 laggards have perked up recently.

As to the market, there seems to be little impetus to see much profit taking, with Wednesday's dip just incidental. Meanwhile, the market's underlying strength could be seen in the advance-decline ratio, which saw gaining stocks almost triple declining issues for a time. Also helping things were the issuance of benign inflation figures before the stock market opened. Here, the Labor Department reported that the Producer Price Index, a reflection of price movements at the wholesale level, declined 0.1% in December, on a 0.7% drop in food prices. Energy quotations were flat and core prices (i.e., food and energy) were up just 0.1% for the month.

It had been the fear of budding inflation that had taken stocks down modestly on Wednesday. The logical concern is that should inflation start to heat up, the Federal Reserve would be expected to become more aggressive on the interest rate front. The lead bank next meets at the end of this month. The market then firmed up somewhat more as the afternoon proceeded, with the Dow's gain passing the 150-point mark, while strength in the small- and mid-cap indexes was evident by respective gains of better than a full percentage point each in the Russell 2000 Index and the S&P Mid-Cap 400 Composite. 

The stock market continued on its merry way as the afternoon wound down, with most groups, again save for the defensive food and household stocks, doing well. The latter groups have been under pressure intermittently in recent sessions, as have other defensive groups, such as the telecoms and the utility stocks, on the fear of competition from rising bond yields. As to bond rates, Treasuries rallied yesterday, with the yields easing back a little. The reduction in yields helped the equity market, as well, in the most recent session. 

At the close, the aforementioned strength (indeed, the market actually closed with a last-minute flourish) sent the Dow Industrials to a session-best gain of 206 points, and to increases of 19 and 58 points, respectively, in the S&P 500 Index and the NASDAQ. The S&P 400, up 27 points, and the Russell 2000, up 27 points, too, continued to lead the way higher. Also, only the utilities among the ten leading market sectors ended lower, while three times as many stocks rose in price as declined. All in all, it was another stellar day for this raging bull market.

As we head into the final trading day of the week and on the heels of yesterday's further surge in the U.S. markets, we see that the indexes were slightly higher across Asia overnight, while the rally also is continuing in Europe thus far this morning. Finally, oil prices are backing off their recent highs in New York this morning; interest rates are up a bit; and U.S. futures, which were trending sharply higher earlier this morning, have now turned mixed with less than a half hour to go to the opening bell.  - Harvey S. Katz, CFA

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.