US markets closed lower on oil prices, US tax overhaul concern

16 Nov 2017 Evaluate

The US markets closed lower on Wednesday, with both the Dow and the S&P 500 suffering their biggest one-day percentage drops since September as falling oil prices and worries over the progress of a US tax overhaul left investors increasingly averse to putting more money into assets seen as risky. The session marked the first time in 50 sessions that the S&P fell at least 0.5% in a single trading day, putting an end to its longest such streak since 1968. The concerns over the progress of tax-cut legislation in Washington were lingering. The Senate Finance Committee unveiled major changes to its tax legislation late Tuesday, including a repeal of the Obamacare individual mandate. Uncertainty over the issue grew after Republican Sen. Ron Johnson said he wouldn’t vote for the plan, putting its odds of passing into further question.

Meanwhile, Boston Fed President Eric Rosengren said that falling unemployment and sustained growth mean the US economy has accelerated beyond a sustainable level so the Federal Reserve should continue to raise interest rates, including next month. Rosengren added that the Fed’s preferred price measure has lingered below a 2-percent target for five years and is now at 1.3 percent. Unemployment has fallen to 4.1 percent, down from a crisis-era high of 10 percent, while overall economic growth is running strong at 3 percent. He enlightened that it is quite likely that unemployment will fall below 4 percent, which is likely to increase pressures on inflation and asset prices. That suggests the need to continue to gradually remove monetary policy accommodation, which is quite consistent with market expectations of another increase in December.

On the economy front, retail sales slowed in October after a sharp gain in the prior month. Sales rose 0.2% in October. Sales rose a revised 1.9% in September, up from the prior estimate of a 1.6% gain, boosted by post-hurricane spending. Excluding autos, sales rose 0.1% after a 1.2% gain in September. Sales excluding autos and gasoline climbed 0.3% after being up 0.6% in the prior month. Growth in consumer spending has been healthy, with retail sales up 4.6% over the past year. But aggressive retail discounting suggests tough times for the retailers themselves. The Empire State index fell 10.8 points to 19.4, moving back from a three-year high but still pointing to a solid manufacturing environment in the New York area. Any reading above zero indicates improving conditions. The new-orders index rose to 20.4 and shipments fell to 18.4.

Separately, the consumer price index rose 0.1% in October, held down by falling energy prices. This was in line with forecasts. If food and energy are stripped out, core CPI rose a slightly larger 0.2%. The drop in energy prices in the CPI pushed the yearly rate of inflation down to 2% from 2.2% in September. Yet the more closely followed core rate rose at a 1.8% annual rate, up from 1.7% in September and the fastest pace since April. Adjusted for inflation, hourly wages fell 0.1%. Over the past year real wages have risen just 0.4%.

The Dow Jones Industrial Average lost 138.19 points or 0.59 percent to 23,271.28, the Nasdaq dropped 31.664 points or 0.47 percent to 6,706.21, and the S&P 500 edged lower by 14.25 points or 0.55 percent to 2,564.62.

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