Stocks Sink to End Year as Santa Claus Rally is Kidnapped by Grinch; Gold, Silver Push Higher

As trading drew to a close for 2017, a banner year for stocks was blemished buy a final bout of selling which rendered three of the four major averages lower for the week.

Only the NYSE Composite managed to eek out a gain for the shortened, four-day week, but even that was marginal, up less than a tenth of a percent. The NASDAQ was the most serious casualty, losing nearly one percent for the week. The Dow suffered its worst one-day loss since November 15.

Much of the selling came in the final hour of the session, suggesting that it was largely programmatic, a rebalancing of select funds for end-of-quarter or end-of-year purposes.

For the S&P and the Dow, the day's decline was the fifth in the past eight, though the S&P still managed to close out the week - and the year - just 21 points away from its all-time high.

Whether or not this late-month selloff continues into January 2018 is questionable, given that markets are still buoyant and money, by and large, is still on the cheap side. Thus, it would not be out of the question to see stocks gallop out of the gate on January 2nd.

Perhaps more compelling than watching stocks do an imitation of drying paint the past two weeks was the activity in precious metals, as gold and silver each took off as the year drew to a close. After being beaten down the first part of December, both metals rallied sharply down the stretch.

Silver hit a triple-bottom, six-month low of 15.67 per ounce on December 13, only to rebound to end the year at a respectable 17.01 on Friday. Gold, which was beaten down to 1240.90 (also December 13), hitting a five-month bottom, advanced smartly through the final two weeks, ending the year at 1302.50. Silver's eight percent rally and the five percent move in gold were the best two-week showings for the metals since July.

Some of the rally in metals was undoubtably due to the demise of the dollar, which closed out the year at 92.30, close to its September 8 low-point of the year, 91.35. It traded as low as 91.10 on the day but strengthened into the close.

If there's any meaning to be drawn from the past two weeks of trading, it could be that a sudden whiff of caution may have taken markets by surprise after the Republicans in congress and President Trump managed to push through a tax reform bill right after the Fed raised rates for the third time this year. After all, with Fed on a path of rising interest rates and the federal deficit poised to explode higher in the latter half of 2018, there may finally be a good, factual reason to bail out of stocks.

Despite the best efforts of a deeply-divided congress, fiscal policy is anything but disciplined. Meanwhile, the Federal Reserve is committed to massive bond dumping onto a market which can scarce absorb it.

2018 may indeed be one best described as a collision course of correcting bad monetary policy with tightening and loose fiscal policy. One cannot have the best of all things.

At the Close, Friday, December 29, 2017:
Dow: 24,719.22, -118.29 (-0.48%)
NASDAQ: 6,903.39, -46.77 (-0.67%)
S&P 500: 2,673.61, -13.93 (-0.52%)
NYSE Composite: 12,831.78, -21.31 (-0.17%)

For the Week:
Dow: -34.84 (-0.14%)
NASDAQ: -56.57 (-0.81%)
S&P 500: -9.73 (-0.36%)
NYSE Composite: +11.38 (+0.09%)