Equities ran to new record highs on Tuesday, with the S&P 500's financial sector (+2.6%) leading the advance.
The Dow Jones Industrial Average and the S&P 500 Index climbed 1.1% and 1.0%, respectively, while the tech-heavy Nasdaq Composite advanced a relatively modest 0.5%. All three major U.S. stock indices closed at new all-time highs, as did the small-cap Russell 2000, which jumped 1.5%.
Tuesday's rally was fueled by developments in Washington, including the Senate Budget Committee's approval of the GOP's tax reform bill--which effectively sends the bill to the full upper chamber for a vote. There were concerns that the bill wouldn't make it to the Senate floor due to Republicans' slim one-vote majority in the Budget Committee.
In addition, Jerome Powell's Fed Chair confirmation hearing provided support to the broader market--and to financials in particular.
Mr. Powell's comments were largely in line with the Fed's current policy rhetoric, although he did sound a little more lax than current Fed Chair Janet Yellen in the area of regulation. Specifically, Mr. Powell said rules implemented since the financial crisis are 'tough enough' and emphasized a desire to reduce regulatory constraints on smaller banks.
Financial heavyweights like JPMorgan Chase (JPM 101.36, +3.43), Bank of America (BAC 27.64, +1.05), Wells Fargo (WFC 55.57, +1.62), and Citigroup (C 73.70, +2.31) finished with gains between 3.0% and 4.0%.
On a related note, the yield curve steepened slightly as U.S. Treasuries sold off, pushing the 2yr-10yr spread to 59 basis points. The yield on the benchmark 10-yr Treasury note climbed two basis points to 2.34%, while the 2-yr yield jumped one basis point to 1.75%. A steeper yield curve bodes well for lenders' earnings prospects.
The industrial sector also finished ahead of the broader market, adding 1.5%, as did the lightly-weighted telecom services group, which jumped 2.2%.
However, the top-weighted technology sector struggled throughout the session, ending with a gain of just 0.2%. Mega caps like Apple (AAPL 173.07, -1.02), Alphabet (GOOG 1047.41, -6.80), and Facebook (FB 182.42, -0.61) weighed on the group, finishing with losses between 0.3% and 0.7%.
Sill, the tech space is this year's top-performing sector by far, sporting a year-to-date gain of 39.2%. For comparison, the S&P 500 has climbed 17.3% year to date.
It's also worth pointing out that Tuesday's rally was briefly interrupted in the afternoon following reports that North Korea launched a ballistic missile that landed in the Sea of Japan in Japan's exclusive economic zone. President Trump later responded to the launch, saying "it's a situation we will handle."
Elsewhere, equity markets in Europe finished Tuesday broadly higher, with the UK's FTSE (+1.0%) pacing the advance. After European markets were closed, reports surfaced that the EU and UK have reached a deal on the terms of Brexit liabilities. The pound overcame an early loss to add 0.3% on the U.S. dollar (1.1843).
Stock indices in the Asia-Pacific region ended Tuesday mostly flat; China's Shanghai Composite (+0.3%) showed relative strength.
Reviewing Tuesday's heavy dose of economic data, which included November Consumer Confidence, October Advance International Trade In Goods, October Advance Wholesale Inventories, the September FHFA Housing Price Index, and the September S&P Case-Shiller Home Price Index:
- The consumer confidence reading for November increased to 129.5 (Briefing.com consensus 124.0) from the prior month's revised reading of 126.2 (from 125.9).
- The key takeaway from the report is that consumers are optimistic about the labor market, but are surprisingly reserved about their short-term income prospects. That is noteworthy because high levels of consumer confidence help consumer spending activity, yet it is income growth that drives consumer spending activity.
- The Advance report for International Trade in Goods for October showed a deficit of $68.3 billion (Briefing.com consensus -$65.4 billion), up from a deficit of $64.1 billion in September.
- The Advance report for Wholesale Inventories for October showed a decrease of 0.4%. The prior month's increase was revised to 0.1% from 0.3%.
- The FHFA Housing Price Index rose 0.3% in September (Briefing.com consensus +0.6%), while the August increase was revised to 0.8% from 0.7%.
- The Case-Shiller 20-city Index increased 6.2% in September (Briefing.com consensus +6.0%), while the August increase was revised to 5.8% from 5.9%.
On Wednesday, investors will receive the weekly MBA Mortgage Applications Index at 7:00 ET, the second estimate of third quarter GDP (Briefing.com consensus +3.2%) at 8:30 ET, October Pending Home Sales (Briefing.com consensus +0.6%) at 10:00 ET, and the Fed's Beige Book for November at 14:00 ET.
- Nasdaq Composite +28.4% YTD
- Dow Jones Industrial Average +20.6% YTD
- S&P 500 +17.3% YTD
- Russell 2000 +13.2% YTD