Summary:

The major domestic equity indexes extended gains on Thursday as largely upbeat data pointed to strength in the economy and investors cheered Treasury Secretary Steven Mnuchin’s comments on tax reform.

President Donald Trump’s administration has a detailed plan on tax reform and is still on track to execute the agenda by the end of this year, Mnuchin said.

The remarks come on the back of Trump’s speech on Wednesday, when he reiterated his longstanding call for slashing the corporate tax rate to 15 percent from 35 percent.

Earlier on Thursday, data showed consumer spending, which accounts for more than two-thirds of economic activity, increased 0.3 percent last month after a 0.2 percent gain in June.

The upbeat consumer report comes a day after data showed the economy grew at its fastest pace in the second quarter in over two years. In China, factory growth accelerated unexpectedly in August, according to a report.

However, the core personal consumption expenditures (PCE) price index – the Fed’s preferred inflation measure – increased 1.4 percent in the 12 months through July, its smallest year-on-year increase since December 2015.

Investors are awaiting the comprehensive monthly jobs report on Friday, which will help investors gauge the strength of the labor market as they look for clues on the Fed’s next move on rates.

UnitedHealth’s gain provided the largest boost to the Dow. The Nasdaq biotech index rose 2.18 percent, helped by a rise in Gilead, Celgene and Biogen.

Dollar General fell 4.85 percent after reporting a decline in second-quarter margins.

Campbell Soup fell 6.23 percent, becoming the largest percentage loser on the S&P, after the company warned that sales for fiscal 2018 could fall.

The Institute for Supply Management-Chicago said its MNI Chicago Business index was unchanged at a reading of 58.9 in August.

For the month, the S&P was up 0.05 percent while the Dow gained 0.28 percent and Nasdaq was up 1.27 percent.

Approximately 6.2 billion shares changed hands on the major domestic equity exchanges on Thursday compared with the 5.8 billion share average for the last 20 sessions.

Consumer Spending Rises

Consumer spending rose less than anticipated during July and annual inflation advanced at its slowest pace in more than 1-1/2 years, diminishing expectations of an interest rate increase in December.

Inflation remains stubbornly low even as the labor market is near full employment, a conundrum for the Federal Reserve.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3 percent last month after a 0.2 percent gain in June. Economists had forecast consumer spending rising 0.4 percent in July.

The personal consumption expenditures (PCE) price index excluding food and energy edged up 0.1 percent in July. The so-called core PCE price index, which is the Fed’s preferred inflation measure, has now risen by the same margin for three straight months.

The 12-month increase in the core PCE price index dipped to 1.4 percent, the smallest gain since December 2015. The index rose 1.5 percent in the 12 months through June. The annual rate has dropped by half a percentage point since February and the PCE price index has undershot the U.S. central bank’s 2 percent target for the past five years.

The combination of moderate consumer spending and tepid inflation casts doubts on whether the Fed will increase interest rates at its December policy meeting, as most economists expect.

The Fed has raised borrowing costs twice this year. It is, however, expected to announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities next month.

Financial markets are pricing in a roughly 31 percent probability of a rate increase at the Fed’s December meeting, down from about 35 percent earlier, according to CME Group’s FedWatch program.

The consumer spending report still suggested the economy got off to a strong start in the third quarter after gross domestic product increased at a 3.0 percent annualized rate in the April-June period, the fastest in more than two years.

Growth in the second quarter was buoyed by robust consumer spending. The continuing strength of the labor market should support consumer spending.

In July, consumer spending was lifted by a 0.4 percent rebound in personal income after being unchanged in June. Consumers also tapped into savings, which fell to a seven-month low of $510.2 billion from $515.7 billion in the prior month.

While consumers will continue to drive the economy, housing will probably remain a drag. A report from the National Association of Realtors indicated contracts to purchase previously-owned homes fell in July, the fourth decline in past five months. Housing is being hurt by an acute shortage of properties available for sale.

Unemployment Claims Up Slightly

Data on Thursday also indicated a minimal increase in new applications for unemployment benefits last week amid a tightening job market.

According to a report by the Labor Department on Thursday morning, initial claims for state unemployment benefits rose by 1,000 claims to 236,000 claims, seasonally adjusted, for the week ended Aug. 26.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell by 1,250 to 236,750 last week, the lowest reading since May.

Claims have now been below 300,000, a threshold associated with a robust labor market, for 130 consecutive weeks. That is the longest such stretch since 1970, when the labor market was smaller.

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