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Stocks Split on Outlook as Tech Leads Losses

Dow Jones Reaches New Record Close as Nasdaq Slides on Weakness in Tech Stocks

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The Dow Jones Industrial Average climbed for a 6-straight session on Monday, reaching a new record close as positive sentiment leads to a continuation of the recent trend.  However, broader indices were back on the retreat as losses in the technology sector dragged on more diversified benchmarks, especially the Nasdaq Composite which is heavily weighted towards technology.

Tech Crumble Overshadowed By New Dow Highs


The main focus of attention over the last few sessions has been the dramatic surge in Dow futures as the election results and possibility of increased fiscal spending help drive gains in the index’s components.  Due to its more narrow focus and scope with less emphasis on being a broad measure of the economy, the Dow Jones Industrial Average rose by 0.11% during Monday’s session, outpacing gains in other local benchmarks and closing at a new record.  The S&P 500 closed mostly flat while Nasdaq futures shouldered the brunt of the losses as famous names including Facebook, Amazon, Netflix, and Google all dragged index performance lower.  Since the election, these stocks in particular have been under pressure, especially amid concerns about Trump’s perspective towards overseas trade.  While Nasdaq futures are trading slightly higher during the European open, more losses in big name tech stocks could continue to weigh on performance.

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RBA More Confident in the Outlook


Since dropping interest rates to a record low 1.50%, policymakers from the Reserve Bank of Australia have been concerned with a number of developments.  The predominant anxiety has been surrounding exchange rates with the Australian dollar remaining overvalued according to central bank officials.  In the overnight release of the minutes from the RBA’s November meeting, it has become apparent that growing indebtedness of consumers alongside rising property values should give pause for caution.  Furthermore, the RBA is concerned about spare capacity in the labour economy, especially after citing “weakness in labour demand” twice during its last statement.  Even though rebounding commodity prices have helped bolster the outlook and further accommodation is unlikely, there are still looming problems as consumption outpaces wage growth.  The AUDUSD is nearly flat since the announcement after falling upon the minutes release before bouncing ahead of the European open.

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German Growth Cools


In a sign of trouble for the outlook, German growth decelerated more than forecast during the third quarter, with expansion nearly halving during the period.   Preliminary data released earlier by Destatis showed third quarter GDP gain a tepid 0.20% versus expectations of 0.40% after recording 0.40% growth during the second quarter.  Annualized GDP also missed estimates by a wide margin, falling to 1.50% from 3.10% reported a quarter earlier.  While some bright signs have come in the form of rising inflation, lackluster growth could signal more challenges ahead, especially for global trade.  A weaker Euro should help the economy remain competitive, however, if the international trade environment stumbles, it could spell trouble for Europe’s leading economy.  After opening higher on Monday, DAX 30 futures have since retreated, closing the session lower and reopening weaker on Tuesday amid the poorer outlook for GDP.

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Copper’s Overbought Rally Comes Back to Earth


The prospect of Donald Trump unleashing massive fiscal stimulus through a combination of infrastructure spending and tax cuts was enough to send copper prices soaring over the last week.  After the strongest rally in nearly 35-years and highs last seen in June of 2015, prices have been on the retreat since Friday.  Despite stronger demand from China and potential buying pressure from the United States, the massive spike in prices could be symptomatic of an overbought rally that will continue to retreat after an extreme move higher over the last few weeks.  Although the price is undoubtedly more bullish, prices are likely to continue correcting over the near-term as the exuberance from the latest rally fades.  While prices closed modestly higher at the end of trade on Monday, copper is already down over -2.00% on the session as selling pressure accelerates.

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