A hurricane pummeled the southern U.S. region to begin the week, President Donald Trump targeted tax reform, and retail earnings rounded out the reporting season. Here's where Wall Street stands.
Where Markets Stands
Benchmark indexes closed out the week with gains for the second week in a row. Since Monday, the Dow Jones Industrial Average has risen 0.80%, the S&P 500 climbed 1.37%, and the Nasdaq added 2.7%. The Dow has closed higher for four of the past five days, and the S&P 500 and Nasdaq all five.
The Nasdaq ended the week at a record close for its second session in a row. The S&P 500 was just points from its all-time closing high set on Aug. 7.
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Jobs, Jobs, Jobs
August was a disappointing month for the labor market.
The U.S. economy added 156,000 jobs in August, according to the Labor Department. Economists surveyed by FactSet anticipated 180,000 jobs to have been added to nonfarm payrolls in August. July's job increase was cut to 189,000 from 209,000, while June's increase was cut to 210,000 from 231,000.
The U.S. unemployment rate increased to 4.4% from 4.3%, a surprise to economists looking for an unchanged reading. Hourly wages rose by 2.5% over the past 12 months, a flat reading from July.
"Overall, the report wasn't a tragedy, but it wasn't rollicking either," Dan North, chief economist at Euler Hermes North America, told TheStreet. "Most importantly, and most disappointing, wages gained a mere 3 cents, leaving the year-over-year growth rate at 2.5%, where it has stubbornly remained for five consecutive months."
The disappointing jobs report probably won't halt the Federal Reserve's plans to begin reducing its balance sheet, likely to begin this month, continued North. However, it could put a crimp in previous plans to hike one more time before the year is out. The chances of a December rate hike sit around 42%, according to CME Group fed funds futures.
The Fed has previously said it would begin unwinding its balance sheet "relatively soon" should the economy continue to grow at the pace expected. Unloading mortgage-backed securities and other assets would likely tighten monetary conditions in the same way an interest-rate hike would.
So. Much. Data.
It was a busy week elsewhere on the economic calendar with critical data ranging from consumer behavior to manufacturing activity.
The second estimate of second-quarter economic growth in the U.S. came in above expectations. Second-quarter GDP increased to 3% from a prior estimate of 2.6% growth, according to the Bureau of Economic Analysis. Analysts anticipated a smaller increase to 2.7%.
"The revised GDP growth rate likely comes as a sigh of relief for folks looking for further confirmation that the U.S. economy is moving along swiftly," said Mike Loewengart, vice president of investment strategy at E*TRADE. "With solid recent retail sales numbers and this morning's blockbuster ADP jobs numbers, growth was expected but certainly not guaranteed."
Manufacturing activity in the U.S. rose at a faster pace than anticipated in August, according to the Institute for Supply Management. The ISM Manufacturing Index rose to 58.8 in August, up from 56.3 in July. Analysts expected a reading of 56.6.
Construction spending unexpectedly declined in July. Sector spending fell 0.6%, compounding a 1.4% drop in June. Analysts anticipated an increase of 0.6%. Private construction dipped 0.4%, while public construction slumped 1.4%.
In consumer data, sentiment in August was not as strong as initially thought, according to a final reading from the University of Michigan. The sentiment index receded to 96.8, down from a preliminary reading of 97.6. Economists had expected the reading to hold at 97.6. Views of current conditions fell, while expectations rose.
Consumer confidence strengthened in August, just below a 16-year high set in March. The Consumer Confidence Index increased to 122.9 in August, far better than an anticipated decline to 120.3. Optimism increased to 121.1 in July.
Personal incomes and spending each rose in July, a promising sign that the U.S. consumer is bouncing back. Consumer spending increased 0.3% in July, while incomes gained 0.4%. The savings rate declined by 10 basis points to 3.5%.
Pending home sales in July showed a surprise decline. The measure, which tracks signed real estate contracts, fell by 0.8% in July to 109.1. Sales have declined in four out of the past five months. Analysts expected an increase of 0.5% after a 1.3% rise in June.
Home prices increased at a faster pace in June than in May, largely tied to price increases in Seattle, according to the S&P Corelogic Case-Shiller Home Price Index. National home prices increased 5.8% in June, up from 5.7% in May. Economists expected the measure to remain steady at May levels.
Tax Reform at the Top of the To-Do List
The prospect of tax reform kept the market flame alight mid-week. Treasury Secretary Steven Mnuchin talked up the prospects of a major tax overhaul by the end of the year. In comments to CNBC on Thursday, Aug. 31, Mnuchin said the White House has devised a "very detailed" tax plan that is currently circulating with members of Congress. The plan will be made public by the end of September.
"It's going to go through a process and we expect the House and the Senate will get this to the president to sign this year, and we couldn't be more excited about the progress we've made," he added.
On Wednesday, Aug. 30, President Trump gave a rough outline of his vision for tax reform and called on Congress to act. In a speech in Missouri, Trump said he wanted to reduce the "crushing" tax burden by "fundamentally [reforming]" a confusing tax code. Among the few details listed, he again said he wanted to cut the corporate tax rate to 15% from 35%.
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The tax cut would be part of four main goals the president said should be included in a tax overhaul: simplifying the tax code, making it more competitive with tax regimes in other countries, providing tax relief for middle-class families and encouraging U.S. companies to bring back trillions of dollars in profits "parked overseas."
National Economic Council Director Gary Cohn said earlier this month that the White House had developed a "skeleton" and that the Ways and Means Committee would need to flesh out the details.
"Once the ground is laid for tax reform, Congress will focus on getting any infrastructure plan through," said Marc Lowlicht, CEO of Opes Private Wealth Management. "While Congress is very divided on many issues, this is one in which I believe with some posturing on both sides -- between tax cuts on the Republican side and job creation especially for the working class on the Democrat side of the aisle -- they should find some common ground."
Hurricane Harvey Causes Waves for Commodities
Commodities prices have been erratic this week as investors assessed the impact of Hurricane Harvey on drilling and refining activity in the Texas and Louisiana area. Harvey has forced the shutdown of some major refineries along the Gulf Coast. According to some estimates, about a quarter of the U.S. refining industry was shut down.
At least 4.4 million barrels per day of refining capacity was offline, based on company reports and Reuters estimates. Texas refines 5.5 million barrels of oil a day, the most of any state and roughly 30% of the U.S. refining capacity, while Louisiana accounts for around 18%.
"As refineries have been shut down (due to damage, the inability for workers to reach them, or the inability to get gasoline out of them) a lack of demand for oil has been created," explained Matthew Peterson, chief wealth strategist for LPL Financial. "In turn, this has increased the amount of oil in storage waiting to be refined, thereby depressing prices. On the other side, refiners' inability to produce and distribute gasoline and other refined products is weighing on supply and driving those prices higher."
Don't Look Now. North Korea is at it again.
North Korea launched its latest missile test on Monday evening, Aug. 28, the first to fly directly over Japan since 2009. North Korea's missile test was launched late Monday evening and landed just 1,200 kilometers (750 miles) off the Japanese island of Hokkaido.
The latest move from North Korea will likely increase geopolitical risk in the region. Japanese Prime Minister Shinzo Abe called the move an "unprecedented, grave and serious threat that seriously damages peace and security in the region."
Donald Trump, in a statement from the White House on Tuesday, Aug. 29, said, "All options are on the table" with regards to North Korea. The president in the past has threatened military action if North Korea continued to threaten the U.S. and its allies. Trump previously said the U.S. would bring "fire and fury" should North Korean and its leader Kim Jong-un continue to issue threats.
U.S. ambassador to the U.N. Nikki Haley said Tuesday that "something serious has to happen ... Enough is enough." The U.N. Security Council will reportedly hold a closed meeting on North Korea on Tuesday.
"Investors are concerned that this may lead to retaliation from not only Japan and South Korea but the U.S. too, especially given the rhetoric Donald Trump deployed a couple of weeks ago," said Fawad Razaqzada, market analyst at Forex.com.
The End of Earnings Season
Retail earnings were mostly positive in the past week. Lululemon Athletica Inc. (LULU) guided for a positive full year. The sportswear brand anticipates full-year revenue between $2.545 billion and $2.545 billion, a surprise after weak spring sales earlier in the year contributed to conservative estimates.
Lululemon also exceeded second-quarter estimates. Earnings of 36 cents a share came in a penny over expectations, while comparable-store sales increased 7%. Revenue rose 13% to $581.1 million, above expectations of $567 million.
Dollar General Corp. (DG) reported better-than-expected sales over its fiscal second quarter. Sales increased 8.1% to $5.83 billion, ahead of expectations of $5.83 billion. Same-store sales increased 2.6%, 100 basis points above forecasts. Second-quarter earnings of $1.08 a share came in a penny below estimates. Higher sales growth was tied to an increase in average transaction amounts and improved traffic trends.
Best Buy Co. (BBY) bested second-quarter estimates. The electronics retail chain earned 67 cents a share over its recent quarter, up form 61 cents a share a year earlier. On an adjusted basis, earnings of 69 cents a share came in above estimates of 63 cents. Revenue of $8.9 billion exceeded consensus of $8.7 billion. Same-store sales rose 5.4%, far better than a targeted 2.1% increase. CEO Hubert Joly said higher sales were "driven by stronger consumer demand for technology products and by the strong execution of our strategy." Best Buy also increased its full-year revenue guidance to 4% growth from 2.5%.