Rudd’s MarketView stock column for Tuesday, April 25, 2017

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The Nasdaq Composite hit a record high on Tuesday, while the Dow Jones Industrial Average and the S&P 500 indexes brushed against recent peaks as strong earnings underscored the health of corporate America.

Caterpillar ended up 7.9 percent at $104.42 after earlier hitting a multi-year high of $104.89 and McDonald’s rose 5.6 percent to $141.70, after both companies exceed the Street’s earnings estimates.

The overall earnings of S&P 500 companies are estimated to have risen 11.4 percent in the first quarter, the most since 2011, according to Thomson Reuters I/B/E/S.

The Nasdaq hit a record level of 6,036.02, breaching 6,000 for the first time, powered by gains in index heavyweights Apple and Microsoft. The index first touched the 5,000 mark on March 2000 as tech stocks bubbled before tumbling nearly 80 percent through October 2002. The Russell 2000 also hit an intraday record high.

The S&P 500 touched its day’s high after the Wall Street Journal reported President Trump’s tax proposal, expected on Wednesday, would include a slash to 15 percent from 39.6 percent on many owner-operated companies.

Tuesday’s gains built on a day-earlier rally, which was driven by the victory of centrist candidate Emmanuel Macron in the first round of the French presidential election. Polls showed Macron, the market’s favorite, was likely to beat his far-right rival Marine Le Pen in a deciding vote on May 7.

Approximately 7.31 billion shares changed hands on the major domestic equity exchanges, a number that was above the 6.4 billion share daily average over the last 20 sessions.

Day’s Economic News

Consumer confidence fell from a 16-year high in April, but a rise in new home sales to an eight-month high last month suggested underlying strength in the economy despite an apparent sharp slowdown in growth in the first quarter.

The economy’s healthy fundamentals were also underscored by other data on Tuesday showing the largest year-on-year increase in house prices in 2-1/2 years during February. Though consumer confidence slipped this month, it remained at a very high level and many households expected to buy big-ticket items like cars. That would suggest an acceleration in consumer spending after a slowdown that likely helped restrain economic growth at the start of the of the year.

The Conference Board said its consumer confidence index fell to 120.3 this month from 124.9 in March, which was the highest reading since December 2000. The index in April was the second highest reading since 2000.

Consumers’ assessment of labor market conditions was slightly less favorable than in March. Still, the survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the second-highest since 2001.

That measure closely correlates to the unemployment rate in the Labor Department’s employment report. The survey also indicated increases in the number of consumers planning to buy major appliances.

The dip in confidence is likely related to last month’s failed attempt by Republicans in the House of Representatives to pass legislation to repeal the Affordable Care Act, the 2010 healthcare restructuring popularly known as Obamacare. That failure stirred concerns in financial markets about the difficulties the Trump administration might have in implementing other policies, including its plan to cut taxes.

In a separate report on Tuesday, the Commerce Department reported that new home sales rose 5.8 percent to a seasonally adjusted annual rate of 621,00 units last month, the highest level since July 2016. New home sales were up 15.6 percent compared to March 2016. They have now increased for three straight months.

A tightening labor market, marked by a 4.5 percent unemployment rate, is improving employment opportunities for the young and helping to support the housing market. The strength of the housing market suggests that signs of a sharp moderation in economic growth in the first quarter are an aberration.

The Atlanta Federal Reserve is forecasting gross domestic product rising at a 0.5 percent annualized rate in the first quarter after increasing at a 2.1 percent pace in the fourth quarter. The government will publish its advance first-quarter GDP estimate on Friday.

While the inventory of new homes on the market in March increased to the highest level since July 2009, it is less than half of what it was at its peak during the housing boom in 2006.

Tight housing stock is pushing up prices. A third report on Tuesday showed the S&P CoreLogic Case-Shiller composite index of house prices in 20 metropolitan areas rose 5.9 percent in February from a year ago, the largest gain since July 2014, after advancing 5.7 percent in January.

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