Closing Market Summary: Another Record Finish Following Senate VoteU.S. equities advanced to new record highs once again on Friday after the Senate passed a budget blueprint for 2018, which was seen as an important step for an eventual tax overhaul. The Dow (+0.7%) led Friday's advance, closing at a record high for the fifth session in a row. The S&P 500 (+0.5%) also notched its fifth straight record close, while the Nasdaq (+0.4%) registered its third record finish of the week.
The major indices opened with gains of around 0.3% apiece and slowly extended those gains into the afternoon, eventually settling near their session highs.
Financial stocks were particularly bullish following the Senate vote, with heavyweights like Goldman Sachs (GS 244.73, +4.74), Wells Fargo (WFC 54.92, +1.17), and Bank of America (BAC 27.17, +0.59) adding at least 2.0% apiece. The S&P 500's financial sector finished at the top of the day's sector standings with a gain of 1.2%.
The risk-on tone was present outside the equity market as well, sending safe-haven assets into negative territory. U.S. Treasuries moved lower in a curve-steepening trade--which added an additional boost to lenders. The benchmark 10-yr yield jumped six basis points to 2.38%, while the 2-yr yield climbed one basis point to 1.57%.
Higher yields increased the demand for the U.S. dollar, sending the U.S. Dollar Index higher by 0.6% to 93.57. The greenback showed particular strength against the Japanese yen--which is considered a safe-haven asset--climbing 0.8% to 113.50. On a related note, gold declined by 0.8% to $1,280.30/ozt.
Industrial heavyweight General Electric (GE 23.83, +0.25) faced heavy selling at the opening bell after missing earnings estimates and issuing disappointing earnings guidance for fiscal year 2017. However, after opening with a loss of around 8.0%, the company bounced back to end the day with a gain of 1.1%. The industrial sector (+1.1%) finished right behind financials at the top of the leaderboard.
Meanwhile, the top-weighted technology sector also had a solid showing, adding 0.7%. PayPal (PYPL 70.97, +3.72) was the group's strongest component after reporting better-than-expected earnings and revenues and issuing upbeat revenue guidance for the fourth quarter. PYPL shares finished higher by 5.5%.
On the flip side, the consumer staples sector struggled, finishing with a loss of 0.2%. Within the group, Procter & Gamble (PG 88.25, -3.34) showed particular weakness, despite reporting above-consensus earnings. P&G shares dropped 3.7%. The only other sector to finish in negative territory was real estate (-0.1%).
After passing the budget blueprint, the next step for the Senate will be to reconcile its version of the budget with the version that the House passed earlier this month. This could be a challenge as the two budget resolutions conflict on the deficit; the House version is deficit-neutral while the Senate's calls for a $1.5 trillion increase in the deficit over a decade.
However, if the two sides can come to an agreement, Republicans will have the ability to pass tax reform without any support from the Democrats under the reconciliation process--which requires only a simple majority in the Senate versus the typical 60-vote threshold.
Reviewing Friday's economic data, which included September Existing Homes Sales and the Treasury Budget for September:
- Existing home sales for September increased 0.7% from August to an annualized rate of 5.39 million units while the consensus expected a reading of 5.29 million. The prior month's reading was left unrevised at 5.35 million.
- The key takeaway from the report is that notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability.
- The Treasury Budget for September showed a surplus of $8.0 billion versus a surplus of $33.4 billion for September 2016.
Investors will not receive any economic data on Monday.
- Nasdaq Composite +23.2% YTD
- Dow Jones Industrial Average +18.0% YTD
- S&P 500 +15.0% YTD
- Russell 2000 +11.2% YTD