Monthly Archives: November 2015

Market Insights 11/30/2015

Stocks Decline on Disappointing Data

U.S. stocks closed the trading session lower on the heels of some disappointing regional manufacturing activity reports and as pending home sales missed expectations. The data kicked off a heavy week for the domestic economic calendar, with the manufacturing sector set to remain in focus tomorrow with the release of reports from ISM and Markit.

Treasuries were mixed, crude oil prices were lower and the U.S. dollar and gold were higher.

The Markets…

The Dow Jones Industrial Average declined 79 points (0.4%) to 17,720

The S&P 500 Index was 10 points (0.5%) lower at 2,080

The Nasdaq Composite shed 19 points (0.4%) to 5,109

In moderately-heavy volume, 1.3 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.06 lower to $41.65 per barrel and wholesale gasoline lost $0.03 to $1.34 per gallon

The Bloomberg gold spot price added $7.49 to $1,064.95 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 100.19

Chicago manufacturing activity falls back into contraction territory

The Chicago Purchasing Managers Index showed Midwest activity surprisingly fell back into contraction territory (below 50) in November, dropping to 48.7 from 56.2 in October, and versus the Bloomberg expectation of a decline to 54.0.

Pending home sales rose 0.2% month-over-month in October, versus the projected 1.0% rise, and following the favorably revised 1.6% drop registered in September. Compared to last year, sales were 2.1% higher, versus forecasts of a 4.3% rise. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in October.

The Dallas Fed Manufacturing Index improved to -4.9 for November from October’s unrevised -12.7 level, with economists forecasting an improvement to -10.0, with a reading below zero denoting contraction.

Treasuries were mixed, with the yield on the 2-year note ticking 1 basis point higher to 0.93%, while the yield on the 10-year note declined 1 bp to 2.21% and the 30-year bond rate dipped 2 bps to 2.98%.

Tomorrow, the U.S. economic calendar will be focused on November manufacturing activity with the release of the ISM Manufacturing Index and Markit’s Manufacturing PMI Index. ISM’s read is projected to tick slightly higher to 50.5 from 50.1 in October, while Markit’s report is forecasted to remain at the preliminary 52.6 level, but down from the prior month’s read of 54.1. Readings above 50 for both indexes denote expansion. As noted in the Schwab Market Perspective: Realism Returns, The US economy is currently bifurcated; with manufacturing recently near contraction territory, but services showing healthy growth. Given the 12% and 88% respective weights in the economy, a broader recession is unlikely. In addition, the outperformance of the industrials sector since the August-September correction suggests the worst may be over for the manufacturing sector.

Europe higher ahead of this week’s ECB decision, Asia mostly lower to begin week

European equities finished mostly higher, despite some lackluster action in Asia and as the European Central Bank monetary policy meeting is later this week. The euro decreased versus the U.S. dollar, while bond yields in the region traded mostly to the upside. German economic data was in focus, with the nation posting an unexpected decline in October retail sales, while a separate report revealed a 0.1% m/m rise in consumer price inflation for November, matching estimates, and compared to the flat reading registered in the month prior. In other economic news, U.K. mortgage approvals last month slightly missed expectations.

Stocks in Asia finished mostly lower amid continued volatility in the Chinese markets and following some mixed economic data out of Japan. Chinese equities encountered some heightened volatility on the heels of Friday’s sharp drop that came courtesy of reports that China Securities Regulatory Commission has widened its regulatory probe into the brokerage industry. Mainland Chinese markets overcame solid early losses to tick higher. Stocks in Japan decreased, with the yen nudging higher during the session, while reports showed the nation’s industrial production rose by a smaller-than-expected amount, though retail sales grew much more than forecasted for October. South Korean equities were bogged down by weakness in oil & gas and health care stocks, while drops for basic materials and consumer goods issues led to a decline for Australian securities.

Indian equities ticked higher, amid some caution ahead of tonight’s monetary policy decision from the Reserve Bank of India (RBI). Ahead of the RBI’s decision, the nation reported a 7.4% year-over-year pace of 3Q GDP growth after the closing bell, after expanding by 7.0% in 2Q, and versus expectations of a 7.3% rise. Schwab’s Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers analysis of India in his article, India Becomes World’s Fastest Growing Economy: What Investors Need to Know, at www.schwab.com/oninternational, and follow Jeff on Twitter: @JeffreyKleintop.

Market Insights 11/27/2015 – Black Friday

Minimal Gains in Shortened Session

U.S. stocks closed an abbreviated trading session mixed and near the unchanged mark after being shuttered yesterday for the Thanksgiving holiday. Black Friday gathered most of attention as investors focused on the retail sector as economic news and equity trading were exceptionally quiet.

Treasuries and the U.S. dollar gained ground, while gold and crude oil prices were lower.

Overseas, global equities may have been hurt on reports that China’s Securities Regulatory Commission has widened its regulatory probe into the brokerage industry.

The Markets…

The Dow Jones Industrial Average decreased 15 points (0.1%) to 17,798

The S&P 500 Index increased 1 point (0.1%) to 2,090

The Nasdaq Composite advanced 11 points (0.2%) to 5,128

In light volume, 388 million shares were traded on the NYSE and 777 million shares changed hands on the Nasdaq

WTI crude oil lost $1.11 to $41.93 per barrel, wholesale gasoline was unchanged at $1.35 per gallon

The Bloomberg gold spot price declined by $13.65 to $1,058.67 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 100.06

Markets were mixed for the week, as the DJIA declined 0.1%, the S&P 500 Index gained 0.1%, and the Nasdaq Composite Index increased 0.4%

Black Friday

Retailers were in focus as today, known as “Black Friday,” which marks the traditional ramp up of the holiday shopping season. The recent retail sales report showed lackluster growth. But within the consumer sector there are some conflicting signals. We have to recognize that there is a new, and perhaps “smarter” consumer, born out of the financial crisis and subsequent deleveraging cycle. In particular, consumers are increasingly anxious about taking on more revolving debt to fund consumption.

In addition, some traditional retail measurements may not best capture the full scope of changing consumer behaviors. For instance, more money, according to recent retail sales reports, appears to be going toward experiences rather than goods, and the purchases that are made increasingly move to more nontraditional spaces. So be careful about those sounding the death knell for American consumers—they appear to be spending more conscientiously and in different places and ways than in years past. We remain optimistic about the 68% of the U.S. economy driven by consumer spending as wages appear to be rising, and lower energy costs leaves more discretionary money in consumers’ pockets.

Treasuries mixed in abbreviated session

Treasuries were mixed, while the U.S. economic calendar was void of any major releases today. The yields on the 2-year and 10-year notes declined 1 basis point to 0.92% and 2.22%, respectively, while the 30-year bond rate increased 1 bp to 3.00%.

Stocks were little changed on the week, amid heightened geopolitical concerns in the wake of the Paris terrorist attacks and the downed Russian warplane by Turkish fighter jets. Also, the divergence in global monetary policy remained in focus with growing expectations that the European Central Bank (ECB) may announce further stimulus measures following next week’s monetary policy meeting. Expectations have also ramped up that the Federal Reserve will announce its first rate hike since before the financial crisis after its two-day monetary policy meeting ending December 16. Data this week was mixed. 3Q GDP growth was revised higher to a 2.1% quarter-over-quarter rate, Markit’s preliminary services sector report showed accelerated expansion, and durable goods orders jumped, led by a surge in business spending. However, existing home sales fell slightly more than expected, Markit’s preliminary manufacturing report showed growth in the sector slowed, and Consumer Confidence unexpectedly dropped.

Focus will shift from shopping to interest rates as next week’s economic data as the Fed decision looms, culminating with Friday’s key November non-farm payroll report, which will be preceded by two speaking events from Fed Chairwoman Janet Yellen. Other reports scheduled for next week include: the ISM Manufacturing Index, the Fed’s Beige Book, the ISM non-Manufacturing Index, and monthly U.S. auto sales. Although recent U.S. economic data has been mixed, the strong October nonfarm payroll report, combined with Fed rhetoric, suggest that a rate hike could happen as early as December.

Europe and Asia mostly lower

European equity markets dipped in late-day action, after paring some early losses following a stronger-than-expected report on eurozone economic confidence for November, while U.S. markets returned to action after being closed yesterday for the Thanksgiving holiday. Stocks in the region were hamstrung by a sharp drop in Chinese stock markets overnight on reports of a widening probe by the nation’s regulators into the brokerage industry. Also, conviction may have been constrained by next week’s monetary policy meeting from the ECB and festering global security concerns. The euro traded modestly lower versus the U.S. dollar, while bond yields in the region moved mostly to the downside. In other economic news, U.K. 3Q GDP was unrevised at a 0.5% q/q rate of expansion, as expected, down from the 0.7% pace of growth posted in 2Q.

Stocks in Asia finished mostly to the downside on the heels of some lackluster economic data and as Chinese stocks dropped. China’s Shanghai Composite Index tumbled 5.5% and the Hong Kong Hang Seng Index fell 1.9%, following a drop in Chinese industrial profits for October and amid reports that China Securities Regulatory Commission has widened its regulatory probe into the brokerage industry. Japanese equities finished lower, as the yen strengthened late in the session and reports for October showed the nation’s household spending unexpectedly fell and core consumer price inflation dipped for a third-straight month. Stocks trading in South Korea and Australia also declined.

Indian securities advanced, boosted by reports that Prime Minister Modi has invited leaders of the main opposition Congress Party to discuss a compromise on passing a national sales tax, which has been blocked repeatedly by opponents. A parliamentary session began on Thursday and the bill is Modi’s biggest move yet to push through one of India’s most important economic reforms since the 1990s, per Bloomberg. India Becomes World’s Fastest Growing Economy: What Investors Need to Know, despite obvious similarities, the differences between the Indian and Chinese economies mean India’s leadership holds unique impacts for the global economy and markets helping to buffer global weakness, but also introducing new risks.

Market Insights 11/25/2015

Stocks Move Quietly into the Holiday

Ahead of tomorrow’s Thanksgiving holiday, U.S. stocks finished nearly unchanged in lighter-than-usual volume amid a sundry of economic data, highlighted by a better-than-expected durable goods report and mixed personal income and spending data.

Treasuries were nearly unchanged and the U.S. dollar was higher, while gold was lower and crude oil prices were mixed.

The Markets…

The Dow Jones Industrial Average added just a shade over 1 point to 17,813

The S&P 500 Index was unchanged at 2,089

The Nasdaq Composite gained 13 points (0.3%) to 5,116

In light volume, 677 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.17 higher to $43.04 per barrel, wholesale gasoline lost $0.01 to $1.35 per gallon

The Bloomberg gold spot price declined $4.11 to $1,071.54 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 99.82

Durable goods orders jump to headline robust economic calendar

Personal income was 0.4% higher month-over-month in October, matching Bloomberg’s forecast, while September’s 0.1% increase was revised to a 0.2% rise. Personal spending ticked 0.1% higher m/m last month, versus the expected 0.3% increase, while September’s 0.1% gain was unadjusted. The October savings rate as a percentage of disposable income rose to 5.6% from the upwardly revised 5.3% posted in September. The PCE Deflator was up 0.1% m/m, compared to the forecasted 0.2% gain, with the prior month’s 0.1% dip unadjusted. Compared to last year, the deflator was 0.2% higher, versus expectations of a 0.3% rise. Excluding food and energy, the PCE Core Index was flat, versus expectations of a 0.1% rise, and the index was 1.3% higher y/y, versus the estimated 1.4% increase.

Durable goods orders advanced 3.0% m/m in October, compared to the estimated gain of 1.7%, with September’s 1.2% decline revised to a 0.8% fall. Ex-transportation, orders were up 0.5% m/m, versus the forecasted 0.3% increase, and September’s 0.4% decline was favorably revised to a 0.1% dip. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, jumped 1.3%, compared to projections of a 0.2% gain, and following the upwardly revised 0.4% gain in the month prior, from an initially reported decline of 0.3%.

Weekly initial jobless claims dropped 12,000 to 260,000 last week, compared to the expected dip to 270,000 as the prior week’s figure was upwardly revised by 1,000 to 272,000. The four-week moving average remained at 271,000, while continuing claims rose by 34,000 to 2,207,000, north of the forecasted 2,161,000 level.

The preliminary Markit U.S. Services PMI Index rose to 56.5 in November from 54.8 in October, versus forecasts of an improvement to 55.1, with a reading above 50 denoting expansion.

The final November University of Michigan Consumer Sentiment Index was revised lower to 91.3 from the preliminary level of 93.1, where economists had expected it to remain, with downward adjustments for both current economic conditions and the economic outlook. However, both were higher m/m leading to an improvement for the index over the 90.0 level in October. The 1-year inflation projection remained at October’s 2.7% level, while the 5-10 year inflation outlook rose to 2.6% from 2.5%.

New home sales grew 10.7% m/m in October to an annual rate of 495,000 from September’s downwardly revised 447,000 pace, and compared to forecasts of 500,000. The median home price fell 6.0% y/y at $281,500. The supply of new home inventory dropped to 5.5 months from 6.0 months in September as sales grew m/m in most regions, led by a surge in the Northeast, though sales in the West dipped. New home sales are based on contract signings instead of closings.

Treasuries finished nearly unchanged, as the yields on the 2-year note and the 10-year notes were flat at 0.93% and 2.24%, respectively, while the 30-year bond rate dipped by 1 bp to 2.99%.

The MBA Mortgage Application Index declined 3.2% last week, after rising 6.2% in the previous week. The downward move came as a 4.8% drop in the Refinance Index was met with a 0.5% decrease for the Purchase Index, while the average 30-year mortgage rate fell 4 basis points to 4.14%.

Today’s plethora of data, notably the surge in the business spending component of the durable goods orders report and accelerated growth in services sector activity adds credence to our view that a broader U.S. economic recession is unlikely. However, the status of the consumer remains in question, and the jump in the savings rate of the personal income and spending report suggests that there is a new, and perhaps “smarter” consumer, born out of the financial crisis and subsequent deleveraging cycle.

Please note: All U.S. markets will be closed tomorrow and will trade in an abbreviated session on Friday in observance of the Thanksgiving holiday. As such, there are no economic reports scheduled for release on either day.

European stocks rebound, Asia lower

European equities traded higher, with leisure and travel issues rebounding from their recent drop, which led yesterday’s broad-based declines in the region, on exacerbated geopolitical tensions as Turkish fighter jets downed a Russian warplane.

The euro traded lower versus the U.S. dollar, with comments from officials bolstering expectations of further stimulus measures from the European Central Bank ahead of next week’s monetary policy meeting. Also, the dollar got a boost from a plethora of mostly upbeat U.S. economic data. Bond yields in the region moved to the downside.

Stocks in Asia finished mostly to the downside as yesterday’s downed Russian warplane by Turkish jet fighters exacerbated geopolitical tensions to weigh on sentiment. Japanese equities declined, bogged down by yesterday’s gains for the yen, stocks in South Korea fell with strength in technology issues more than offset by weakness in commodity, consumer goods and industrials stocks, while Australia’s markets declined, with financials weighing on the index, overshadowing gains for technology and oil & gas issues.

Mainland Chinese stocks rose, with volatility easing as the government reduced some measures put in to help stabilize the financial markets during the heightened volatility, but equities in Hong Kong traded lower amid the increased geopolitical concerns.

Though the U.S. economic calendar will offer no economic reports as a result of the Thanksgiving holiday closure, there are some international reports scheduled for release tomorrow and Friday, including trade data from China, CPI, personal income, the unemployment rate and trade balance from Japan, GDP from Spain, consumer confidence from the U.K., consumer spending and PPI from France, business confidence and CPI from Italy and import prices from Germany.

Market Insights 11/24/2015

Late Day Push Into The Green

U.S. equities bounced off the lows of the day to finish slightly higher, despite a mixed bag of economic news and heightened geopolitical tensions after Turkish jet fighters shot down a Russian warplane at the Syrian border.

A late day boost in energy stocks from a jump in crude oil prices helped to pare the early losses in that sector. Meanwhile, treasuries were nearly unchanged, the U.S. dollar fell, and gold was higher.

The Markets…

The Dow Jones Industrial Average (DJIA) gained 20 points, 0.1%, to 17,812

The S&P 500 Index inched 3 points, 0.1%, higher to 2,089

The Nasdaq Composite was nearly unchanged at 5,102

In moderately-heavy volume, 912 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.12 to $42.87 per barrel, wholesale gasoline was $0.07 higher at $1.36 per gallon

The Bloomberg gold spot price increased $5.83 to $1,075.01 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 99.60

First revision to Q3 GDP matches estimates, while Consumer Confidence surprisingly drops

The second look (of three) at 3Q Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.1%, revised upward from the 1.5% expansion reported in the first report. This matched the Bloomberg forecast. Q2 GDP expanded by an unrevised 3.9%. Personal consumption came in at a 3.0% gain for 3Q, from the 3.2% increase previously reported, with expectations calling for an unrevised pace of growth. Personal consumption grew by an unrevised 3.6% in 2Q. The upward revision came as private inventory investment was adjusted higher, partially offset by the downward revision to personal consumption, which was met with a downgrade of exports.

On inflation, the GDP Price Index was revised to a 1.3% gain, versus forecasts of an unrevised 1.2% increase, while the core PCE Index, which excludes food and energy, was unadjusted at a 1.3% rise, matching expectations.

The Consumer Confidence Index unexpectedly dropped to 90.4 in November—the lowest since September 2014—from the upwardly revised 99.1 level in October, and compared to estimates of 99.5. Sentiment toward the present situation and expectations of business conditions both fell solidly m/m. Also, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—fell to -6.3 from the favorably revised -1.9 posted last month.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.5% y/y in September, versus expectations of a 5.2% rise. Month-over-month (m/m), home prices were higher by 0.6% on a seasonally adjusted basis for September, north of forecasts of a 0.3% increase.

The Richmond Fed Manufacturing Activity Index surprisingly fell further into contraction territory (a reading below zero), declining to -3 in November from the unrevised -1 level in October, and compared to the expected increase to 1.

Treasuries were nearly unchanged, as the yield on the 2-year note fell 1 basis point to 0.93%, while the yields on the 10-year note and the 30-year bond were flat at 2.24% and 3.00%, respectively.

The robust Thanksgiving-shortened U.S. economic week will culminate tomorrow, headlined by the releases of Markit’s preliminary Services PMI Index and durable goods orders. Services sector growth is projected to accelerate slightly for November, while demand for goods built to last at least three years is forecasted to rebound modestly in October from September’s declines. Other reports on tomorrow’s docket include: MBA mortgage applications, personal income and spending, weekly initial jobless claims, new home sales, and the final November University of Michigan Consumer Sentiment Index.

Europe sees pressure following downed Russian warplane, Asia mixed

European equities traded broadly lower, amid a flare-up in geopolitical tensions after Turkish fighter jets downed a Russian warplane near the Syrian border. Stocks fell despite some relatively upbeat economic data in the region. German business confidence unexpectedly improved in November, as the Ifo Business Climate Index rose to 109.0—the highest since June 2014—from 108.2 in October, where economists had expected it to remain. Also, Germany’s 3Q GDP was unrevised at a 0.3% q/q pace of growth, matching expectations, but was a dip from the 0.4% rate of expansion posted in 2Q. In other economic news, French business confidence came in north of expectations for November. The euro ticked higher versus the U.S. dollar, while bond yields in the region declined.

Stocks in Asia finished mixed on the heels of the dip for the U.S. markets yesterday, while volatility in commodity stocks continued. Japanese equities returned to action following yesterday’s holiday, gaining ground after overcoming early losses late in the session, despite a rise in the yen just before the closing bell, while the nation’s preliminary PMI Manufacturing Index showed growth in the sector slightly accelerated in November, Elsewhere, mainland Chinese stocks advanced 0.2%, issues traded in Hong Kong declined, and South Korean equities moved higher, led by commodity, financial and technology stocks, while weakness in basic materials issues weighed on Australia’s markets. Finally, stocks traded in India finished lower in volatile action ahead of the expiration of derivative contracts and the start of the winter session of parliament later this week, per Bloomberg.

Market Insights 11/23/2015

Stocks Dip as Early Gains Flip

U.S. equities closed the first trading session of the Thanksgiving holiday-shortened week lower as reports on housing and manufacturing activity missed estimates.

Treasuries were mixed following the domestic data, while crude oil prices slipped slightly after oscillating between gains and losses on the heels of Saudi Arabia reaffirming its commitment to help stabilize oil prices. The U.S. dollar was higher and gold traded lower.

In equity news, Pfizer and Allergan announced plans to merge, and if successful would create the world’s biggest drug maker by sales in the largest inversion ever.

The Markets…

The Dow Jones Industrial Average lost 31 points (0.2%) to 17,793

The S&P 500 Index inched 3 points (0.1%) lower to 2,087

The Nasdaq Composite slipped 2 points to 5,102

In moderate volume, 808 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.15 lower to $41.75 per barrel, wholesale gasoline rose $0.02 to $1.29 per gallon

The Bloomberg gold spot price decreased $9.17 to $1,068.84 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 99.81

Existing home sales preliminary manufacturing reports miss forecasts

Existing-home sales in October dropped 3.4% month-over-month to a 5.36 million annual rate, compared to the Bloomberg forecast of a decline to a 5.40 million pace. September’s figure was unadjusted at a 5.55 million unit rate. Sales are 3.9% higher y/y. The median existing-home price was 5.8% above a year ago at $219,600, and total inventory fell 2.3% m/m but is higher y/y. Single-family home sales and condominium sales were lower m/m, but the former was still nicely higher y/y, while the latter is now lower versus the prior year. All four major regions saw no gains in sales last month. The National Association of Realtors (NAR) noted that the decline in sales was expected given the pullback in contract signings the last couple months, while mixed economic data and volatility in the financial markets slightly tempered demand.

The preliminary Markit U.S. Manufacturing PMI Index for November declined to 52.6 from October’s 54.1 level, and compared to the forecast of a dip to 54.0. However, reading above 50 denotes expansion and Markit said output, new orders and employment grew at slower rates, while a renewed fall in new export sales weighed on the index.

Treasuries were mixed, with the yield on the 2-year note ticking 1 basis point higher to 0.93%, while the yield on the 10-year note lost 1 bp to 2.25% and the 30-year bond rate dipped 2 bps to 3.00%.

Tomorrow, the U.S. economic calendar will bring the second look (of three) at 3Q Gross Domestic Product (GDP), projected to show growth at an annualized 2.1% quarter-over-quarter pace, an increase from the initial read of 1.5% and after registering 3.9% in 2Q. Shortly after the GDP read, the S&P/Case-Shiller Home Price Index is expected to show a 5.1% year-over-year increase of home prices within the 20-city composite, and a 0.3% month-over-month rise on a seasonally-adjusted basis. Consumer Confidence is expected to rise to a level of 99.5 during November from the 97.6 in October. Rounding out the day will be the Richmond Fed Manufacturing Index, forecasted to move back into expansion territory to a level of 1 during November from the -1 posted the month prior, with zero the demarcation point between expansion and contraction activity.

Europe moves lower, Asia mixed to kick off the week

European equities finished mostly lower, amid some volatility in commodity stocks, while increased expectations of a December Fed rate hike remained in focus. Stocks moved to the downside despite an upbeat read on eurozone business activity. Markit’s Eurozone Composite PMI Index—a gauge of output in both the services and manufacturing sectors—improved to 54.4 for November, from 53.9 in October, and compared to the rise to 54.0 that was expected. The euro was lower versus the U.S. dollar, while bond yields traded higher.

Stocks in Asia finished mixed following the strong gains last week for the global markets, as traders grappled with heightened global security concerns and increased Fed rate hike expectations, though volume was lighter than usual with Japanese markets closed for a holiday. Stocks trading in China decreased, with the China Securities Regulatory Commission restarting initial public offerings (IPOs) after they were halted for the past five months. Indian equities were bogged down by copper and aluminum issues, however South Korean stocks rose, with healthcare listings standout winners and Australian securities moved higher, as weakness in resource-related issues were more than offset by gains for consumer-related stocks.

Market Insights 11/20/2015

Stocks Finish Week with Solid Gains

U.S. equities closed nicely higher, tacking onto a strong weekly rally, though stocks did pare some solid early gains that sprung on the heels of a flood of favorable retail sector results.

Treasuries were slightly lower as the domestic docket revealed Midwest manufacturing activity unexpectedly moved into expansion territory.

Additionally, domestic markets seemingly shrugged off some recent global security concerns, which were heightened on the deadly hostage situation in Mali. The U.S. dollar and crude oil prices were higher and gold moved lower.

The Markets….

The Dow Jones Industrial Average increased 91 points, or 0.50% to 17,824

The S&P 500 Index increased 8 points, or 0.40%, to 2,089, Healthcare, Industrials and Consumer Discretionary led the way higher while Energy and Consumer Staples ended the day lower.

The Nasdaq Composite advanced 31 points, or 0.60%, to 5,105

In moderate volume, 965 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil added $0.18 to $41.90 per barrel, wholesale gasoline was unchanged at $1.29 per gallon

The Bloomberg gold spot price declined by $4.56 to $1,077.65 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 99.60

Markets were nicely higher for the week, as the DJIA advanced 3.4%, the S&P 500 Index gained 3.3%, and the Nasdaq Composite Index increased 3.6%

Regional manufacturing report shows return to expansion to close out the week

The Kansas City Fed Manufacturing Activity Index rose to 1 for November from -1 in October, versus Bloomberg expectations of a rise to 0 (the demarcation point between expansion and contraction).

Treasuries were lower, with the yield on the 2-year note increasing 2 basis points to 0.91% and the yields on the 10-year note and the 30-year bond gaining 1 bp to 2.26% and 3.02%, respectively.

Europe mixed amid festering security concerns, Asia posts modest gains to finish the week

Most European equity markets finished mixed, but closed out a solid weekly advance, with another round of dovish commentary from European Central Bank President Mario Draghi supporting expectations of further stimulus measures next month. The euro traded lower versus the U.S. dollar, likely supporting stocks, while bond yields in the region were mixed. However, weakness in oil & gas and banking issues on some analyst downgrades for some names in the sectors likely hamstrung the markets, along with festering security concerns amid a deadly hostage situation at a luxury hotel in Bamako, the capital of the West African country of Mali. The situation comes on the heels of the deadly terrorist attacks in Paris a week ago. In economic news, German producer price inflation fell more than expected in October, while U.K. public sector net borrowing came in above forecasts for last month.

Stocks in Asia finished modestly to the upside even as the U.S. markets followed Wednesday’s rally with a lackluster session yesterday. Japan’s Nikkei 225 Index ticked higher, with stocks rallying in the final moments of the session, despite the yen holding onto the prior day’s gains. Mainland Chinese equities rose in subdued action as traders digested late-yesterday’s announcement that the People’s Bank of China (PBoC) reduced rates on short-term loans given to its banks to try to boost liquidity as initial public offerings (IPOs) are set to resume by year’s end. However, stocks trading in Hong Kong rallied late in the session, buoyed by continued expectations that more stimulus measures from the government could be in the offing. Securities in South Korea and India ticked higher, while Australian equities were led to the upside by banking stocks and gold mining companies.

WEEKLY RECAP: Stocks snap back on winning track despite heightened global security concerns

After snapping a string of six-straight gains last week, U.S. stocks rebounded solidly this week, with the midweek release of the Federal Reserve’s October meeting minutes clearing up uncertainty of a December rate hike, while also easing concerns about the trajectory of the path of future rate hikes. The retail sector was again in the spotlight, headlined by upbeat earnings results from Dow members Wal-Mart Stores Inc. and Home Depot Inc., while technology stocks lead a broad-based advance for the major market sectors.

The U.S. economic front painted a mixed picture with Leading Indicators rising more than expected, some regional manufacturing reports showing returns to expansion territory, and consumer price inflation (CPI) growing modestly. However, industrial production and homebuilder sentiment declined, while a solid drop in housing starts was met with a noticeable gain in building permits. Finally, the global markets showed some resiliency in the face of heightened security concerns in the wake of the deadly terrorist attacks in Paris a week ago.

THE WEEK AHEAD: Short week but heavy on the data

With the markets closed on Thursday and set for an abbreviated session on Friday, in observance of the Thanksgiving Holiday, a robust U.S. economic calendar will be crammed into the first half of the week, headlined by existing home sales, the first revision of Q3 GDP, and durable goods orders. After an October that was almost straight up for stocks, a dose of reality hit the market in November. The digestion of gains is healthy as it keeps investor sentiment in check, which should help to keep the long-term bull market intact. A robust October jobs report pushed the probability of an initial Federal Reserve rate hike in December higher. We agree it’s likely the Fed will finally move off the zero interest rate strategy; but reiterate that the pace is likely to be slow—which has historically been a positive for stocks.

Other key reports on next week’s domestic docket include: Markit’s preliminary November business activity reports, personal income and spending, Consumer Confidence, new home sales, and the final University of Michigan Consumer Sentiment Index.

Market Insights 11/19/2015

Stocks Take Pause

U.S. stocks finished mildly lower as investors digested some meaty corporate reports and economic data on the heels of yesterday’s solid rally that transpired following the release of the Federal Reserve’s October meeting minutes.

Global stocks staged solid advances on preserved expectations of a U.S. rate hike next month and a likely gradual pace of future hikes. Treasuries were mixed and gold was higher, while the U.S. dollar and crude oil prices were lower.

The Markets..

The Dow Jones Industrial Average lost 4 points to 17,733

The S&P 500 Index inched 2 points, 0.1%, lower to 2,081

In sector news, 6 of the 9 S&P 500 sectors were higher, led by Utilities +1.08, Technology +.46% and Industrials +.44%. HealthCare -1.68% and Energy -1.34% slid lower.

The Nasdaq Composite slipped 2 points to 5,074

In moderate volume, 820 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.23 lower to $41.72 per barrel, wholesale gasoline rose $0.02 to $1.29 per gallon

The Bloomberg gold spot price increased $11.64 to $1,082.36 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% lower at 98.96

Jobless claims decline

Weekly initial jobless claims declined by 5,000 to 271,000 last week, compared to the Bloomberg estimate calling for a decrease to 270,000, as the prior week’s figure was unrevised at 276,000. The four-week moving average rose by 3,000 to 270,750, while continuing claims declined by 2,000 to 2,175,000, north of the forecasted 2,167,000 level.

The Conference Board’s Index of Leading Economic Indicators (LEI) rose 0.6% month-over-month (m/m) in October, versus the projection of a 0.5% gain, and September’s 0.2% decline was revised to a 0.1% dip. Components pertaining to the yield curve, stock prices, and building permits boosted the index, while ISM new orders was the lone component that was negative.

The Philly Fed Manufacturing Index in November rose to 1.9 from -4.5 in October, and compared to the forecasted improvement to -0.5, with a reading above zero denoting expansion.

Unique in this economic cycle has been the wide divergence between the manufacturing and services sides of the U.S. economy. Right now, we are betting that the strength in services will drag manufacturing out of stagnation, as services account for roughly 88% of the U.S. economy, while the forces negatively impacting manufacturing have eased somewhat. The new order components—leading in nature—of the ISMs manufacturing and services reports both were positive and bode well for potential future improvement.

Tomorrow, the lone major release from the U.S. economic calendar will be the Kansas City Fed Manufacturing Activity Index, which is forecasted to improve to a level of 0 for November from the -1 registered in October, with 0 the demarcation point between expansion and contraction activity.

Europe and Asia higher following Fed minutes

European equities traded higher, with yesterday’s release of the U.S. Fed’s October meeting minutes keeping expectations of a rate hike next month preserved, while also hammering home an outlook that the pace of future rate hikes would likely be gradual. In economic news, U.K. retail sales fell more than expected in October and Switzerland’s trade surplus widened for last month. Also, yesterday’s raid by France that claimed the life of the suspected planner of Friday’s deadly terrorist attacks in France could have helped sentiment. The euro was higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished broadly higher, following the rally in the U.S. yesterday, which came despite heightened global security concerns with the release of the U.S. Fed’s October meeting minutes acting as a catalyst. Japanese equities advanced, but pared gains as the yen rose late in the session after the Bank of Japan left its highly-accommodative monetary policy stance unchanged and as a report showed the nation’s exports and imports both fell more than expected in October. Stocks trading in mainland China and Hong Kong experienced solid gains, along with Indian securities, which were aided by strength in auto and technology issues. Additionally, China announced measures to boost liquidity into the financial system, courtesy of some rate cuts of short-term lending facilities. South Korean equities joined the rally and a jump in basic materials stocks helped boost Australian issues nicely higher.

Market Insights 11/18/2015

Markets Gain Despite Security Concerns, Fed Minutes

U.S. equities finished solidly higher, despite a mixed bag of reports from both the earnings and economic fronts, including the Fed minutes that further added to December rate hike expectations, as well as increased global security concerns following France’s deadly overnight raid in the aftermath of Friday’s terrorist attacks in Paris.

Treasuries were mixed and the U.S. dollar was flat, while gold was lower and crude oil prices were higher.

The Markets…

The Dow Jones Industrial Average rallied 248 points, or 1.4%, to 17,737

The S&P 500 Index rose 33 points, or 1.6%, to 2,084

All 9 sectors of the S&P 500 surged higher, led by HealthCare +1.75%, Financial +1.74%, Materials +1.65% and Consumer Discretionary +1.59%

The Nasdaq Composite jumped 89 points, or 1.8%, to 5,075

In moderately-heavy volume, 909 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.08 higher to $40.75 per barrel, wholesale gasoline rose $0.03 to $1.27 per gallon

The Bloomberg gold spot price decreased $0.47 to $1,069.83 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 99.60

Housing construction paints mixed picture, ahead of look at Fed’s October meeting

Housing starts for October fell 11.0% month-over-month (m/m) to an annual pace of 1,060,000 units, compared to the Bloomberg forecast of a 1,160,000 unit rate. September’s starts were downwardly revised to an annual pace of 1,191,000, from the 1,206,000 rate initially reported. Single and multi-family units were lower versus September, led by a sharp drop in the latter, which is down solidly y/y, while the former was higher y/y. However, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, rose 4.1% m/m in October to an annual rate of 1,150,000, after September’s slight upward revision to a 1,105,000 rate—from a pace of 1,103,000 units that was previously reported. Economists had expected permits for October to come in at an annual pace of 1,147,000 units. Permits for single and multi-family structures were higher m/m, with the former up y/y, while the latter is down versus the prior year.

The MBA Mortgage Application Index rose 6.2% last week, after decreasing 1.3% in the previous week. The increase came as a 2.3% gain in the Refinance Index was met with an 11.9% rise for the Purchase Index, while the average 30-year mortgage rate advanced 6 basis points to 4.18%.

The Federal Reserve released the minutes from the Federal Open Market Committee’s October meeting, signaling that “it may well be appropriate” to increase the target for its benchmark interest rate next month, with most participants anticipating that the conditions to embark on an upward rate move “could well be met by the time of the next meeting.” Expectations have ramped up regarding whether the Central Bank would decide to hike rates in December, bolstered by the much stronger-than-expected October nonfarm payroll report. However, Friday’s terrorist attacks in Paris have added some uncertainty.

Treasuries finished mixed, as the yield on the 2-year note rose 2 bps to 0.87%, the yield on the 10-year note flat at 2.27%, while the 30-year bond rate dipped 2 bp to 3.04%.

Tomorrow’s domestic docket will be somewhat lighter in scope, with weekly initial jobless claims slated for release, forecasted to move lower to a level of 270.000 from the prior week’s 276,000, and the Philly Fed Manufacturing Activity Index following the jobs report, with economists looking for an improvement to a reading of -0.3 for November from October’s -4.5 level, but a reading below zero still indicates contraction in activity. Rounding out the day will be the Index of Leading Economic Indicators, anticipated to show a m/m increase of 0.5% for October following the 0.2% declined posted in September.

Europe lower rally on increased security concerns, Asia mixed

European equities traded mostly lower, coming off yesterday’s rally, with a flare-up overnight in security concerns weighing on sentiment, though oil & gas issues gained ground. Two Paris-bound Air France-KLM flights landed safely after being diverted due to bomb scares, while France conducted a raid North of Paris that left two people dead following a gun battle with suspects believed to be linked to Friday’s terrorist attacks. Also, conviction may have been hamstrung by festering Chinese economic concerns and ahead of today’s release of the minutes from the U.S. Federal Reserve’s October meeting. In economic news in the region, Eurozone construction output declined in September. The euro was little changed versus the U.S. dollar, while bond yields in the region moved mostly lower.

France’s CAC-40 Index declined 0.6%, Germany’s DAX Index dipped 0.1%, Spain’s IBEX 35 Index and Italy’s FTSE MIB Index dropped 1.0%, while the U.K. FTSE 100 Index was up 0.2% and Switzerland’s Swiss Market Index traded 0.4% higher.

Stocks in Asia finished mixed amid some cautious trading on further security scares in the wake of Friday’s terrorist attacks in Paris. Also, conviction was likely constrained by economic concerns in China and caution ahead of today’s release of the U.S. Fed’s October meeting minutes and tomorrow’s monetary policy decision from the Bank of Japan. Japanese equities ticked higher after giving back early gains as the yen strengthened on the focus on the aforementioned geopolitical developments, while mainland Chinese stocks and those traded in Hong Kong declined, as President Xi noted “considerable downward pressure” facing the economy, and as a read on home prices in the nation showed gains decelerated in October versus the prior month.

Market Insights 11/17/2015

Early Rally Disappears

The bulls attempt to keep the rally train moving ahead sputtered in afternoon action with stocks paring gains to finish nearly where they began.

Investors weighed continued jitters in the aftermath of the terrorist attacks in Paris as upbeat results from Dow members Wal-Mart and Home Depot, an in-line consumer price inflation report helped overall sentiment.

Treasuries were little changed, gold finished lower and crude oil prices were mixed, while the U.S. dollar was modestly higher.

The Markets…

The Dow Jones Industrial Average inched 6 points higher to 17,490

The S&P 500 Index lost 3 points (0.1%) to 2,050

The Nasdaq Composite added 1 point to 4,986

In heavy volume, 1.1 billion shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil lost $1.07 to $40.67 per barrel, wholesale gasoline was unchanged at $1.24 per gallon

The Bloomberg gold spot price declined $11.68 to $1,071.08 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 99.62

Inflation in line, while industrial production and homebuilder sentiment decline

The Consumer Price Index (CPI) rose 0.2% month-over-month in October, matching the Bloomberg forecast, while September’s 0.2% decline was unrevised. The core rate, which strips out food and energy, also gained 0.2% m/m, in line with expectations, and matching September’s unrevised increase. Y/Y, prices were up 0.2% for the headline rate, versus forecasts of a 0.1% gain, while the core rate was 1.9% higher, in line with projections. September’s y/y figures showed an unrevised flat reading and an unadjusted 1.9% rise for the headline and core rates respectively.

The Federal Reserve’s industrial production report declined 0.2% m/m in October, versus the estimated 0.1% increase, while September’s 0.2% decrease was unrevised. Manufacturing production rose modestly, while output in mining and utilities fell. Capacity utilization dipped to 77.5% from September’s upwardly revised 77.7% rate, and matching projections. Capacity utilization is 2.6 percentage points below its long-run average.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month declined to 62 from October’s upwardly revised 65 level, and compared to estimates calling for 64. Builder confidence remained above 50, which separates good and poor conditions, for the seventeenth-straight month. The NAHB noted, “Even with this month’s drop, builder confidence has remained in the 60s for six-straight months—a sign that the single family housing market is making long-term headway.” However, “our members continue to voice concerns about the availability of lots and labor.”

Treasuries were little changed, as the yields on the 2-year and 10-year notes were flat at 0.85% and 2.27%, respectively, while the yield on the 30-year bond ticked 1 basis point lower to 3.05%.

Tomorrow, the highlight of the day will likely be the afternoon release of the minutes from the Federal Open Market Committee’s (FOMC) October meeting. Expectations have ramped up regarding if the Central Bank decides to hike rates next month, bolstered by the much stronger-than-expected October nonfarm payroll report. However, Friday’s terrorist attacks in Paris have added some uncertainty. Many investors are asking if the horrors in Paris will keep the fed on hold? TYhis is the question to which we don’t yet have an answer. We are seeing troubling trends which could lead the Fed to punt yet again. The dollar has been strengthening, stocks have been selling off anew (with deteriorating breadth), and volatility is moving higher. So far, though, credit spreads and the yield curve are behaving. The uncertainty—which has only been exacerbated by the attacks in Paris—is likely to persist, which means investors should expect more volatility in the weeks to come.

Europe rallies on data and global resiliency, Asia mostly higher

European equities finished nicely higher, with oil & gas stocks leading the way, as the global markets remained resilient in the aftermath of Friday’s deadly terrorist attacks in Paris. German investor confidence rebounded solidly for November, with the ZEW Survey of Expectations—a survey of investor and analyst outlooks six months ahead—rising to 10.4 from 1.9 in October, and compared to the expected improvement to 6.0. Also, EU new car registrations rose 2.9% for October, while U.K. consumer price inflation dipped 0.1% y/y for last month. Greek stocks got a boost on the announcement that the nation has reached an agreement with its international creditors on financial reforms early today, fostering optimism that fresh bailout aid is in the offing for the troubled nation. The euro declined versus the U.S. dollar, while bond yields in the region traded mostly to the downside.

Stocks in Asia finished mostly higher on the heels of yesterday’s rally in the U.S., as concerns about the impact on the global markets of Friday’s terrorist attacks in Paris faded. Japanese equities gained ground, bolstered by some weakness in the yen, while issues traded in Australia jumped amid a broad-based rally, with oil & gas issues a standout winner. Traders also digested the minutes from the Reserve Bank of Australia’s (RBA) November monetary policy meeting. The RBA, which held its benchmark interest rate at a record low of 2.0%, noted that prospects for an improvement in economic conditions had firmed a little over recent months, while its inflation outlook may afford some scope for further easing should that be appropriate. Stocks in South Korea and India rose. however Chinese stocks finished mixed, with the Hong Kong equities following most markets in the region higher, while mainland markets gave up solid early gains to finish lower on concerns about the impact on some stocks of the resumption of initial public offerings (IPOs), per Bloomberg.

Market Insights 11/16/2015

Stocks Strong Amid Somber Mood

The U.S. equity markets stood tall in the face of the aftermath of the deadly terrorist attacks in Paris, getting a boost from technology stocks and oil & gas issues amid a rise in crude oil prices. Treasuries were little changed following a disappointing domestic regional manufacturing report, while gold and the U.S. dollar were higher.

The Markets…

The Dow Jones Industrial Average rallied 238 points (1.4%) to 17,483

The S&P 500 Index jumped 30 points (1.5%) to 2,053

The Nasdaq Composite gained 57 points (1.2%) to 4,985

In moderate volume, 865 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.00 to $41.74 per barrel, wholesale gasoline was unchanged at $1.24 per gallon

The Bloomberg gold spot price declined $1.25 to $1,082.56 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 99.42

Regional manufacturing activity misses, to begin busy economic week

The Empire Manufacturing Index showed the contraction in output from the New York region (a reading below zero) for November was larger than expected. The index improved to -10.7 from the unrevised -11.4 in October, with the forecast calling for an improvement to -6.4.

Treasuries finished little changed, with the yield on the 2-year note 1 basis point higher at 0.86%, while the yields on the 10-year note and the 30-year bond were flat at 2.27% and 3.05%, respectively.

Today’s report kicked off a heavy U.S. economic docket that will begin to heat up tomorrow with the release of the NAHB Housing Market Index, forecasted to show homebuilder sentiment for November remained at October’s level of 64, with a reading above 50 indicating participants view the housing market as good, as well as the Consumer Price Index (CPI), with economists anticipating a 0.2% month-over-month increase for October following the 0.2% decline in September, while the core CPI, which excludes food and energy, is expected to also rise 0.2% m/m, matching that seen in the month prior. Rounding out the day will be the Fed’s industrial production and capacity utilization report, with production expected to inch 0.1% higher m/m for October after September’s flat reading, and utilization to remain at the prior month’s level of 77.5%.

Europe overcomes early pressure from Paris attacks, Asia lower

European equities finished mixed, though the Stoxx Europe 600 Index registered a modest gain amid some afternoon resiliency in the wake of Friday’s deadly terrorist attacks in Paris, which weighed on tourist-related issues. However, commodity stocks got a boost, notably oil & gas issues, while France ramped up its air campaign in Syria against targets of the “Islamic State,” which claimed responsibility for the attacks. French stocks battled back from early losses to finish modestly lower. Also, a relatively favorable read on eurozone consumer price inflation may have helped provide some relief to sentiment. Eurozone consumer prices were revised to a 0.1% y/y rise, from the preliminary flat reading, where economists had expected it to remain, while core consumer price inflation came in at the highest level since August 2013, per Bloomberg. The euro traded lower versus the U.S. dollar and bond yields in the region moved mostly to the downside.

Stocks in Asia finished mostly to the downside, with Friday’s deadly terrorist attacks in Paris dampening sentiment, while traders digested a disappointing preliminary Japanese 3Q GDP report. Japan fell back into a recession after posting the second-consecutive quarter of GDP contraction, with output declining 0.2% quarter-over-quarter, versus the 0.1% dip that was expected, and matching the decrease seen in 1Q. Japanese equities fell on the report, exacerbated by strength in the yen over the weekend, while the GDP report preceded this week’s monetary policy decision by the Bank of Japan.

Chinese stocks finished mixed, with issues that trade in Hong Kong pressured by the announcement that securities regulators tightened curbs on margin borrowing, while mainland stocks advanced after rallying late in the session on speculation that state funds stepped into the markets to buy shares, per Bloomberg.