Credit Markets Continue to Flash Warning Signs


U.S. stocks inched higher on Thursday as enthusiasm for the GOP’s tax cut plan was eclipsed somewhat by the need to pass a new budget bill to avoid a government shutdown. The House is set to vote later today on a bill to keep the doors open through Jan. 19. Congress is also looking ahead to 2018, with chatter of priorities that include infrastructure and welfare reform.

In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 gained 0.2%, the Nasdaq Composite gained 0.06% and the Russell 2000 gained 0.5%. Meanwhile, Treasury bonds were mixed, the dollar was mixed, gold gained 0.1% and crude oil gained 0.5%.


Breadth was positive, with 1.6 advancers for every declining issue. Volume was light ahead of the holiday, with NYSE activity at just 85% of its 30-day average. Energy led the way with a 2.1% gain, while utilities were the laggards, down 1.2%.

Brazilian aircraft maker Embraer SA (ADR) (NYSE:ERJ) gained 22.2% on a confirmation it held takeover talks with Boeing Co (NYSE:BA). Footwear retailer Finish Line Inc (NASDAQ:FINL) gained 12.9% after reporting a narrower-than-expected loss on increased traffic.

On the downside, Bed Bath & Beyond Inc. (NASDAQ:BBBY) lost nearly 13% despite reporting strong quarterly results on flat comp-store sales amid a focus on weak margins. Biogen Inc (NASDAQ:BIIB) lost 3.3% after an independent data monitoring committee found a drug candidate for Alzheimer’s treatment isn’t meet goals.



Credit markets continue to flash warning signs, with junk bond ETFs dribbling lower all session. Keep an eye on this space, with the GOP tax plan set to pour gasoline on the economy at a time when it’s running above capacity with a very tight labor market.

Not only will this put upward pressure on yields (because of higher GDP growth expectations) but will also boost inflation expectations. And thus, encourage the Federal Reserve to be more aggressive in their rate hike path in 2018.

The result, of course, will be that higher yields push down bond prices.

Check out Serge Berger’s Trade of the Day for Dec. 22.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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