Week in Review: Wall Street Grows More Certain of December Hike After Yellen Comments

Wall Street advanced in the past week as any remaining uncertainty faded over whether the Federal Reserve would pull the trigger on another rate hike come December.

The Dow Jones Industrial Average tempered upward momentum in the past week after seeing its biggest gain in five years during the election week. The blue-chip index rose just 0.11% over the past five days, a fraction of the gains seen in the previous week.

The S&P 500 increased 0.81%. The Nasdaq was the best performer, climbing 1.6%, as tech stocks made a comeback.

The chances of a rate hike in December were reinforced on Thursday after Fed Chair Janet Yellen told lawmakers that an interest rate hike could come "relatively soon." Yellen noted that the labor market continued to show strength and that the economy appeared to have recovered from a sluggish start to the year. Yellen also repeated the stance that the current state of the economy will likely "warrant only gradual increases in the federal funds rate over time" and noted that a delay could impact financial stability.

The comments were made to the Congressional Joint Economic Committee on Thursday morning. The Fed chair last testified before that committee in December of last year, prior to the Fed's decision to hike interest rates for the first time in nearly a decade. A December rate hike already had a high probability among Wall Street pundits with any doubt after Donald Trump's recent election as U.S. president quickly evaporating. The chances of a December rate hike currently sit at 90%, according to CME Group fed funds futures.

Yellen also said she did not foresee any reason why she would not complete her full term. Yellen's four-year term will end on Feb. 3, 2018. She also backed the Dodd-Frank regulations and cautioned against repealing them, noting that it is imperative to have safeguards that "result in a safer and sounder financial system."

President-elect Trump's proposed plans, including an influx of infrastructure spending, moved markets this. Increased spending has bolstered the chances of higher inflation and rising interest rates, pushing the U.S. dollar to surge and bond prices to drop.

"The anticipated Trump agenda which includes lower tax rates and increased fiscal spending are inflationary and therefore support the future rate hikes," added Jennifer Ellison, principal at wealth management firm BOS. "In fact, the Federal Reserve will likely announce that they are still on track to raise rates once or twice in 2017, if not more. If these policies translate to greater economic growth, the Fed will likely become more aggressive about how quickly they raise rates in the coming year."

Rallies in financials and pharmaceuticals propelled the Dow to close at records on Monday and Tuesday. Those sectors have benefited from investors' bets that a Trump Administration would bring decreased regulations. Market gains are also common at the tail-end of election years as uncertainty eases and investors shift back to market fundamentals.

Crude oil ends with weekly gains as renewed hopes over a production freeze agreement among major oil producers overshadowed domestic oversupply concerns. Saudi Energy Minister Khalid al-Falih added to hopes on Thursday after expressing his confidence that Organization Petroleum Exporting Countries would follow through on the details of a deal sketched out at a meeting in Algeria in September. OPEC will meet in Vienna on Nov. 30.

"After three months of build-up, we agree that some deal to limit output is likely since OPEC has to be aware that the failure to finalize an agreement would have strongly bearish price implications," said Tim Evans, energy futures specialist at Citi. "At the same time, however, we remain skeptical that OPEC can execute the full pivot from no limits at all to an effective quota system in one step."

On the domestic front, the Energy Information Administration reported that 5.3 million barrels were added to U.S. stockpiles in the week ended Nov. 11, more than double the 2.4 million barrels a week earlier. Analysts anticipated 1.5 million barrels to have been added. A separate reading from the American Petroleum Institute showed stockpiles rising by 3.7 million barrels over the past week. The number of active oil-drilling rigs in the U.S. rose by 19 to 471, according to Baker Hughes data. 

In economic news, consumer prices in the U.S. got a boost from higher gas prices in October, while producer prices were unchanged. Retail sales climbed at a faster-than-expected pace in October as consumer appetite continued to drive the bulk of economic improvement. Import and export prices in the U.S. both climbed higher than expected in October. 

In retail earnings, Gap (GPS) reported in-line profit and a drop in revenue over its third quarter. Quarterly earnings declined nearly 18%, while sales dropped for their seventh straight quarter. 

Abercrombie & Fitch (ANF) said third-quarter profit tumbled 81% as same-store sales in the period tumbled 6%, more than analysts' expectations of a 4.4% drop. Target (TGT) exceeded quarterly estimates and raised its outlook.

Dick's Sporting Goods (DKS)  issued weak guidance for its fourth quarter, but managed to surpass third-quarter profit and sales forecasts. Foot Locker (FL) reported in-line quarterly sales and better-than-expected profit. Gross margins rose to 33.9% from 33.8%, while revenue increased nearly 6% to $1.89 billion. 

Williams-Sonoma (WSM) reported a mixed third quarter. Comparable-brand sales at Pottery Barn fell, while sales at West Elm continued to outpace its other brands. Home Depot (HD) lifted its full-year earnings estimates after strong sales growth in its third quarter. Lowe's (LOW) fell short of third-quarter earnings and revenue estimates, while same-store sales growth of 2.7% missed analysts' 3% target.

Walmart (WMT)  reported a 1.2% increase in same-store sales. The world's largest retailer also updated its full-year earnings outlook. Best Buy (BBY)  topped third-quarter estimates as strength in sales of computing and home theater products drove growth.

More than two-thirds of retailers listed on the S&P 500 have reported earnings so far this reporting season. Of those that have reported, 59% have exceeded earnings estimates, while 32% have fallen short. The blended growth estimate for retail and restaurant stocks is 10.1%, according to Thomson Reuters. Companies in the internet and catalog retail and hotels, restaurants and leisure subsectors have driven the bulk of growth.

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