Last Week:

  • U.S. equities finished positive for the week: The Dow Jones Industrial Average (DJIA) closed 55 points higher, or rose 0.25%, to 22,405. The Standard & Poor’s 500 (S&P 500) index gained 17 points, or rose 0.69%, to 2,519. The Nasdaq closed last week 1.07% higher at 6,496. During the third quarter, the Dow rose 5.6%, the S&P500 rose 4.5% and the Nasdaq rose 5.8%.
  • Tax framework unveiled: Last week, Republican leaders released their long awaited tax overhaul framework. The highlights include reducing the corporate rate to 20% (from 35%); reducing the number of individual rates to three (12%, 25% and 35%); doubling the standard deduction; and eliminating the estate tax, the alternative minimum tax, and deductions for state and local taxes. The markets reacted positively to the news with small cap stocks gaining almost 3% on the week. U.S. small cap stocks are more sensitive to changes in the U.S. tax code since they derive more of their revenues domestically compared to their large-cap counterparts.
  • U.S. consumer spending: During the week, the Bureau of Economic Analysis reported that personal income increased $28.6 billion (+0.2%) in August – primarily driven by an increase in government social benefits. Disposable personal income increased $14.9 billion (+0.1%) and personal consumption expenditures (PCE) increased $18 billion (+0.1%). Both income and spending for the month slowed down as expected, reflecting the impact of Hurricane Harvey. Core PCE (ex-food and energy), which is the Fed’s preferred measure of inflation, was up 1.3% year-over-year marking the slowest increase since October 2015 and slower than the 1.4% growth in July.
  • M&A: Toshiba agreed to sell its memory-chip unit to a Bain Capital led group for almost $18 billion. General Electric also announced it would sell its industrial solutions business to Switzerland’s ABB for $2.6 billion.

Look Ahead:

Key reports/items for the upcoming week:

  • The ISM manufacturing index for September is reported on Monday
  • Markets are closed all week in China for National Day Golden Week celebrations
  • September auto sales are reported on Tuesday
  • ADP releases its September employment report on Wednesday
  • The ISM nonmanufacturing index for September is reported on Wednesday
  • Philadelphia Fed President, Patrick Harker and San Francisco Fed President, John Williams speak at two different events on Thursday
  • Dallas Fed President, Robert Kaplan participates in Q&A on Friday
  • The Bureau of Labor Statistics will release its September employment report on Friday

The highlight of the upcoming week is the government’s September employment report, which should offer some clues about the strength of the U.S. economy.