Monthly Archives: December 2015

Market Insights

Stocks Lower, S&P 500 Finishes 2015 Flat

U.S. stocks closed the final trading session of 2015 lower, though losses were pared temporarily by strength in the energy sector as crude oil prices rebounded from yesterday’s drop.

Treasuries ticked higher in a shortened session on the heels of disappointing reads on domestic jobless claims and regional manufacturing activity. Gold was nearly unchanged and the U.S. dollar traded higher.

The Markets…

The Dow Jones Industrial Average fell 179 points (1.0%) to 17,425

The S&P 500 Index shed 20 points (0.9%) to 2,044

For 2015 the best performing sector was Consumer Discretionary adding 9% over the last year followed by HealthCare +5.23% and Consumer Staples +4%. While Energy took the biggest fall giving back over 24% over the past 12 months.

The Nasdaq Composite dropped 58 points (1.2%) to 5,007

In light volume, 752 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq

WTI crude oil added $0.44 to $37.04 per barrel and wholesale gasoline gained $0.03 to $1.27 per gallon

The Bloomberg gold spot price decreased $0.97 to $1,060.47 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.3% to 98.60

Markets were lower for the week, as the DJIA decreased 0.7%, the S&P 500 Index declined 0.8%, and the Nasdaq Composite Index lost 0.8%

News on the equity front was sparse in the final trading session of 2015, as uncertainty remained regarding how the S&P 500 would finish for the year that saw mixed performances from the other major indices. The S&P 500 was down 0.7%, the Dow was off 2.2% and the Nasdaq was up 5.7% for the year.

It’s been a “running to stand still” market this year, with U.S. stocks breaking all-time records for the number of times they crossed above and below the flat performance line for the year. The start of 2016 looks to continue that grinding phase. Many global economies—including the United States—have become bifurcated, with manufacturing and commodities still struggling, but consumer and services sectors looking healthy. Investors should stick with their long-term allocations and not look to be either overly aggressive or defensive at this stage, given policy-related uncertainty. With some international central banks expanding their easing programs, assets in areas such as Europe and Japan look relatively attractive and most investors –in accordance with their personal risk tolerance– should have exposure to those regions in a diversified portfolio in our opinion

Jobless claims jump, Chicago business manufacturing activity unexpectedly falls

Weekly initial jobless claims rose by 20,000 to 287,000 last week, versus the Bloomberg estimate calling for a rise to 270,000 as the prior week’s figure was unrevised at 267,000. The four-week moving average grew by 4,500 to 277,000, while continuing claims increased by 3,000 to 2,198,000, north of the forecasted 2,190,000 level.

The Chicago Purchasing Managers Index showed the contraction (a reading below 50) in Midwest activity surprisingly accelerated in December, dropping to 42.9—the lowest since July 2009—from 48.7 in November, and versus expectations of a rise to 50.0. The drop was led by a deterioration in order backlogs, which fell by the largest amount since March 1951.

Treasuries were higher, with the yields on the 2-year note and 30-year bond dipping 2 basis points to 1.05% and 3.02%, respectively, and the yield on the 10-year note declining 3 bps to 2.27%.

Please note: All U.S. markets will be closed tomorrow in observance of the New Year holiday.

Europe trims gains for 2015, Asia mixed in subdued ending to a divergent year

European stocks finished lower in low volume, with several markets closing early today, while markets in Germany, Italy and Switzerland were closed for New Year’s Eve. Although Europe posted the worst December since 2002, per Bloomberg, the benchmark Stoxx Europe 600 Index posted a yearly advance of 6.8%. European stocks were buoyed by expanded monetary policy stimulus measures from the European Central Bank, diverging from the Central Bank in the U.S., as the Fed hiked rates for the first time since before the financial crisis. The euro lost ground versus the U.S. dollar.

Stocks in Asia finished mixed in the final trading session of 2015, with volume light as markets in Japan and South Korea were closed today and other markets closing early ahead of the New Year holiday. Japan’s Nikkei 225 Index posted a 9.1% gain for 2015, while South Korea’s Kospi Index advanced 2.4% for the year, per data compiled by Bloomberg. China’s Shanghai Composite Index was lower on the day with the volatility in oil prices commanding the most attention, but the index finished out the year with a 9.4% gain. The Hong Kong Hang Seng Index was slightly higher in its final session of the year, paring its annual decline slightly to a 7.2% drop. Chinese stocks finished 2015 mixed amid diverging global monetary policies, festering economic growth concerns, the implementation of trading links between the nation’s exchanges, and the devaluation of the country’s currency. Australia’s S&P/ASX 200 Index decreased, bringing its yearly decline to 2.1%, while India’s S&P BSE Sensex 30 Index rose to trim its annual loss to 5.0%.

Heavy economic calendar set to ring in the New Year

The first week of 2016 will deliver a fully-loaded U.S. economic calendar, headlined by business activity reports from the ISM and Markit, durable goods orders, the December Fed meeting minutes, and culminating with the December non-farm payroll report. We believe the current U.S. economic picture appears to be a flawed painting, with a softening manufacturing sector being countered by a continued healthy labor market and the more heavily-weighted services side of the economy. There are myriad issues to contemplate when trying to divine the future, but the focus of the market heading into 2016 will likely continue to be the Fed. At this point, the Fed has bent over backwards to soothe concerns by noting its desire to move gradually, allowing for the economy and markets to adjust. Slow rate hiking cycles have typically been positive for stocks, but with almost a decade having passed since the last hike, volatility is likely to persist.

Other key reports on next week’s domestic docket include: construction spending, December auto sales, ADP employment change, factory orders and trade balance.

Market Insights 12/30/2015

Stocks Dip as 2016 Nears

U.S. stocks moved modestly lower with data and volume on the lighter side as the end of 2015 nears. Energy stocks traded lower to weigh on the markets, with crude oil prices giving back yesterday’s rally in the wake of some bearish oil inventory reports, which are exacerbating oversupply concerns.

Treasuries are lower as yields creep higher, while gold is lower and the U.S. dollar is gaining ground. Overseas, European equities saw some pressure in the final full trading session of the year.

The Markets…

The Dow Jones Industrial Average declined 117 points (0.7%) to 17,604

The S&P 500 Index fell 15 points (0.7%) to 2,063

The Nasdaq Composite decreased 42 points (0.8%) to 5,066

In light volume, 561 million shares were traded on the NYSE and 1.2 billion shares changed hands on the Nasdaq

WTI crude oil decreased $1.27 to $36.60 per barrel, wholesale gasoline lost $0.05 to $1.24 per gallon

The Bloomberg gold spot price dipped $8.58 to $1,060.53 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 98.22

Pending home sales surprisingly fall

Pending home sales declined 0.9% month-over-month in November, versus the Bloomberg projection of a 0.7% rise, and following the favorably revised 0.4% gain registered in October. Compared to last year, sales were 5.1% higher, versus forecasts of a 4.0% rise. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly fell in November.

Treasuries were mostly higher, with the yield on the 2-year note declining 2 basis points to 1.08% and the yield on the 10-year note ticking 1 bp lower to 2.30%, while the 30-year bond rate was nearly unchanged at 3.04%.

Tomorrow, the U.S. economic calendar will offer the Chicago Purchasing Managers Index for December, expected to show activity in the Midwest improved to 50.0 from the 48.7 posted in November, with a level of 50.0 representing the demarcation point between expansion and contraction. We will also receive weekly initial jobless claims, forecasted to increase slightly to 270,000 from the 267,000 level registered the week prior.

Europe sees pressure, Asia mixed as Japan closes out a fourth-straight yearly gain

European equities traded lower with volume and data light in the final full-trading session of the year. Several markets in the region will be closed tomorrow and abbreviated sessions are slated for other markets ahead of Friday’s New Year holiday. Commodity-related stocks led to the downside as volatility in the sector continues, with crude oil prices giving back yesterday’s jump as oversupply concerns resurfaced. Although European equities are poised for the worst December drop since 2002, per Bloomberg, the Stoxx Europe 600 Index is heading for its fourth-consecutive yearly gain. The euro dipped versus the U.S. dollar, while bond yields in the region were mixed.

The U.K. FTSE 100 Index was down 0.6%, France’s CAC-40 Index declined 0.5%, Germany’s DAX Index and Italy’s FTSE MIB Index dropped 1.1%, Spain’s IBEX 35 Index decreased 0.3%, and Switzerland’s Swiss Market Index traded 0.7% lower.

Stocks in Asia finished mixed as volume remained light as 2015 nears an end and volatility in the oil markets continued to be eyed. Japanese equities advanced in the final trading session of the 2015, capping off a fourth-straight year of gains for the Nikkei 225 Index, with a rise in excess of 9.0% for the year. Chinese stocks finished mixed. The Shanghai Composite Index is poised for a solid yearly gain, while the Hong Kong Hang Seng Index is set to be down sharply in 2015. The divergence in the Chinese markets this year has come courtesy of heightened volatility amid festering economic growth concerns, the implementation of trading links between the nation’s exchanges, and the devaluation of the nation’s currency. Lastly, stocks in South Korea and India declined, while strength in health care and financials helped boost Australian securities.

Market Insights 12/29/2015

Bulls Make Push

U.S. equities rallied nicely, following their European counterparts higher, as a rebound in commodity prices helped buoy stocks on the global scene.

Treasuries declined, as yields moved higher, in the wake of an upbeat Consumer Confidence read, while equity news remained light in this holiday-shortened final trading week of 2015 with low volume persisting.

The U.S. dollar and crude oil prices were higher and gold was nearly unchanged.

The Markets….

The Dow Jones Industrial Average advanced 193 points, or 1.1%, to 17,721

The S&P 500 Index jumped 22 points, or 1.1%, to 2,078

In sectors news, Real Estate +1.66%, Technology +1.37% and HealthCare +1.22% led the charge higher as all 9 S&P 500 sectors finished the day higher.

The Nasdaq Composite rallied 67 points, or 1.3%, to 5,108

In moderately-light volume, 585 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq

WTI crude oil increased $1.06 to $37.87 per barrel and wholesale gasoline added $0.05 to $1.29 per gallon

The Bloomberg gold spot price dipped $0.70 to $1,068.38 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 98.13

Consumer Confidence tops expectations

The Consumer Confidence Index rose to 96.5 in December from the upwardly revised 92.6 level in November, and compared to the Bloomberg estimate of 93.5. Sentiment toward the present situation and expectations of business conditions both rose solidly month-over-month. Also, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—improved to -0.6 from the -4.8 posted last month.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.5% year-over-year (y/y) in October, versus the Bloomberg expectation of a 5.6% rise. M/M, home prices were higher by 0.8% on a seasonally adjusted basis for October, above forecasts of a 0.6% increase.

Treasuries were lower, with the yield on the 2-year note rising 5 basis points to 1.09%, the yield on the 10-year note rising 8 bps to 2.31%, and the 30-year bond rate gaining 10 bps to 3.04%.

The only major release expected on tomorrow’s economic calendar is expected to be pending home sales, forecasted to have increased 0.7% m/m for November, while MBA Mortgage Applications will be released next Wednesday, January 6, with two weeks of data.

European stocks rebound, Asia mostly higher

European equities traded higher, with commodities, which have been pressured on oil supply and economic growth concerns, rebounding. U.K. markets were higher in their return to action following a holiday break, but volume in Europe was lighter than usual amid the holiday-shortened final week of 2015. The euro lost ground versus the U.S. dollar and bond yields in the region moved mostly to the upside. European stocks are paring their worst December drop since 2002, per Bloomberg, which has come from the aforementioned rout in commodities and diverging global monetary policies, headlined by the first Fed rate hike since before the financial crisis and the European Central Bank’s (ECB) deployment of further stimulus measures, which underwhelmed earlier this month. Not all countries are as well–positioned as the U.S. to handle the impact of rate hikes and volatility may result as the widening divergence in monetary policy contributes to the challenges facing some markets.

The U.K. FTSE 100 Index was up 1.0%, France’s CAC-40 Index gained 1.8%, Germany’s DAX Index advanced 1.9%, Italy’s FTSE MIB Index increased 1.4%, Spain’s IBEX 35 Index rose 1.2%, and Switzerland’s Swiss Market Index traded 1.6% higher.

Stocks in Asia finished mostly to the upside, with markets in Japan, South Korea and China showing some resiliency to overcome early losses, though volume in the region was light amid a lack of data and as the end of the year looms. Japanese equities rose amid some strength in health care issues, while the yen was little changed versus the U.S. dollar, and South Korean securities ticked to the upside. Australian stocks returned to action in positive fashion after being closed for Christmas in the past two trading sessions, advancing despite some weakness in basic materials issues. India’s S&P BSE Sensex 30 Index increased, adding to its recent run, which has trimmed its yearly drop.

Finally, stocks in China advanced and issues trading in Hong Kong moved higher, rebounding in volatile action from yesterday’s drops that followed a sixth-straight monthly fall in industrial profits and lingering liquidity concerns regarding initial public offerings (IPOs) after the nation announced a new system for stocks to become publicly traded. Also, traders continued to eye the yuan with its reference rate remaining at a more than four year low.

Market Insights 12/28/2015

Stocks Finish Off The Lows of The Day

Though well off the lowest levels of the day, U.S. equities closed the first session of another holiday-shortened week lower as energy issues led to the downside with crude oil prices pulling back sharply from last week’s rally.

Volume remained on the lighter side with the domestic economic and earnings fronts relatively quiet as the lone release from the domestic docket revealed a disappointing read on regional manufacturing activity. Treasuries were mixed, the U.S. dollar was nearly unchanged and gold was lower.

The Markets…

The Dow Jones Industrial Average declined 24 points (0.1%) to 17,528

The S&P 500 Index lost 4 points (0.2%) to 2,057

The Nasdaq Composite shed 8 points (0.1%) to 5,041

In light volume, 604 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.29 to $36.81 per barrel and wholesale gasoline declined $0.04 to $1.24 per gallon

The Bloomberg gold spot price decreased $7.51 to $1,068.59 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 97.94

Contraction for Dallas Fed manufacturing activity accelerates

The Dallas Fed Manufacturing Index fell to -20.1 for December from November’s unrevised -4.9 level, with economists surveyed by Bloomberg forecasting a decline to -7.0. A reading below zero denotes contraction.

Treasuries were mixed, with the yield on the 2-year note gaining 1 basis point to 1.01%, while the yield on the 10-year note declined 1 bp to 2.23% and the 30-year bond rate dipped 2 bps to 2.95%.

The U.S. economic calendar for tomorrow will be relatively light, with the S&P/Case-Shiller Home Price Index expected to show a 5.6% year-over-year increase of home prices within the 20-city composite for October, and a 0.6% month-over-month rise on a seasonally-adjusted basis. Additionally, Consumer Confidence is expected to rise to a level of 93.8 during December from the 90.4 in November.

Europe starts the week low on energy, Asia mixed in light volume

European equities traded mostly lower, with volume lighter than usual as the U.K. markets remained closed for a holiday and earnings and economic data in the region was dormant. Oil & gas issues weighed on the markets with crude oil prices giving back some of last week’s jump. Moreover, some disappointing economic data out of Asia likely hamstrung conviction, while the global markets continued to grapple with the impact of divergent monetary policies worldwide. The central banks of 20 nations, including the Fed, accounting for about one-third of global GDP, raised interest rates in 2015, marking a global divergence in monetary policy from that of the past few years and among central banks as we head into 2016. Not all countries are as well–positioned as the U.S. to handle the impact of rate hikes and volatility may result as the widening divergence in monetary policy contributes to the challenges facing some markets. The euro ticked higher versus the U.S. dollar, while bond yields in the region were lower.

Stocks in Asia finished mixed in light volume to begin the final week of 2015, while Australian markets remained closed for a holiday. Chinese stocks led to the downside following a report showing the nation’s November industrial profits fell for the sixth-straight month to keep economic growth concerns intact. However, Japanese equities advanced despite softer-than-expected reads on the country’s November industrial production and retail sales, with the yen showing some weakness. South Korean securities traded lower, while Indian stocks extending a recent rally.

Wall Street’s Forecast for 2016

10 analysts that were polled have an average target of 2,193 next year, down from last year’s 2,201

Many Wall Street strategists are dusting off their 2015 targets for the S&P 500 index and trimming them for 2016.

Crashing-oil prices and fears of a global recession threw cold water on the index’s performance in 2015, causing it to fall short of the average expected gain of about 10%. With a handful of trading days left in the year and the S&P 500 SPX, -0.22% closing at 2,061 on Thursday 12/24/2015 (for a 0.1% gain year to date), only a handful of the more bearish analysts can hope to meet their 2015 targets — and only if a Santa Claus rally plays out.

Optimism in the stock market took a hit in 2015. The average year-end 2016 target for the S&P 500 for the 10 prominent strategists is actually lower than the average of their original 2015 targets. At this time last year, the strategists had pegged the S&P 500 ending 2015 at an average of 2,201. For the end of 2016, those same analysts have an average target of 2,193.

Of primary concern to strategists going forward in 2016 is how divergent central-bank policies — the Federal Reserve tightening and the European Central Bank easing — will boost the dollar DXY, +0.08% and subsequently pressure earnings of U.S. companies doing business abroad. They’re also looking for heightened volatility and uncertainty during a presidential election year.

Strategist/Firm ………………….Current 2016 target…………….Original end of 2015 target

David Kostin, Goldman Sachs………………….2,100…………………………..2,100
Brian Belski, BMO Capital……………………..2,100…………………………..2,275
Andrew Garthwaite, Credit Suisse……………..2,150…………………………..2,100
Adam Parker, Morgan Stanley………………….2,175…………………………..2,275
Savita Subramanian, B.ofA./Merrill……………2,200…………………………..2,200
Dubravko Lakos-Bujas, J.P. Morgan…………….2,200…………………………..2,250
Jonathan Glionna, Barclays…………………..2,200…………………………..2,100
David Bianco, Deutsche Bank………………….2,250…………………………..2,150
Sam Stovall, S&P Capital IQ………………….2,250…………………………..2,250
John Stoltzfus, Oppenheimer………………….2,300…………………………..2,311

Market Insight 12/23/2015

Santa Arrives

The U.S. equity markets finished out the last full trading session for the year in this holiday-shortened week solidly higher on the heels of a flood of mostly upbeat economic data, and as a jump in crude oil prices on a bullish inventory report gave energy stocks a boost.

Volume was on the lighter side as traders prepare for a shortened session tomorrow and as the U.S. and most international markets will be closed on Friday in observance of the Christmas holiday.

Treasuries were lower, with yields rising, as was gold, while the U.S. dollar was higher.

The Markets…

The Dow Jones Industrial Average jumped 185 points (1.1%) to 17,602

The S&P 500 Index rallied 25 points (1.2%) to 2,064

In a startle change, Energy lead equities higher with the Energy sector jumping 4.35% on the day followed by materials 2.35% and Utilities 1.54%. All 9 S&P sectors finished the day higher with the broad benchmark positing a 1.24% move higher.

The Nasdaq Composite advanced 45 points (0.9%) to 5,046

In moderate volume, 825 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil jumped $1.36 to $37.50 per barrel and wholesale gasoline added $0.07 to $1.24 per gallon

The Bloomberg gold spot price declined $2.83 to $1,069.60 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 98.35

Data mostly upbeat

Personal income was 0.3% higher month-over-month in November, besting Bloomberg’s forecast of 0.2%, while October’s 0.4% increase was unrevised. Personal spending ticked 0.3% higher m/m last month, matching expectations, while October’s 0.1% gain was unadjusted. The November savings rate as a percentage of disposable income dipped to 5.5% from the 5.6% posted in October. The PCE Deflator was flat m/m, compared to the forecasted 0.1% gain, with the prior month’s 0.1% increase unadjusted. Compared to last year, the deflator was 0.4% higher. Excluding food and energy, the PCE Core Index was 0.1% higher, matching expectations, and the index was 1.4% higher y/y.

Durable goods orders were unchanged m/m in November, compared to the estimated decline of 0.6%, with October’s 2.9% increase unrevised. Ex-transportation, orders dipped 0.1% m/m, versus the flat forecast, and October’s 0.5% gain was unrevised. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, slipped 0.4%, compared to projections of a 0.2% decrease, and following the downwardly revised 0.6% gain in the month prior, from an initially reported increase of 1.3%.

The U.S. consumer looks to be in good shape heading into the New Year. But one thing we will continue to watch in 2016 is the potential of a “smarter” American consumer that is unwilling to pile on consumer debt and looks to save more money. The savings rate dipped to 5.5% from 5.6%, the highest reading since 2012, but should these levels continue, it could mean slightly slower but more sustainable growth for the U.S. economy. And consumers haven’t completely closed their checkbooks. Auto sales continue to move higher, while early holiday reports are that modest physical retail sales are being met with strong online sales, indicating a shift in method—not necessarily attitude—among U.S. consumers.

The final December University of Michigan Consumer Sentiment Index was revised higher to 92.6 from the preliminary level of 91.8, and compared to economists’ expectations of a slight improvement to 92.0, with an upward adjustment for the current economic conditions outlook and a slight downward revision to the economic outlook. The 1-year inflation projection ticked lower to 2.6% from November’s 2.7% level, while the 5-10 year inflation outlook remained at 2.6%.

New home sales grew 4.3% m/m in November to an annual rate of 490,000 from October’s downwardly revised 470,000 pace, and compared to forecasts of 505,000. The median home price increased 0.8% y/y at $305,000. The supply of new home inventory dipped to 5.7 months from 5.8 months in October as sales grew m/m in the South and West regions. New home sales are based on contract signings instead of closings.

The MBA Mortgage Application Index jumped 7.3% last week, after declining 1.1% in the previous week. The upward move came as a 10.8% gain in the Refinance Index was met with a 4.1% increase for the Purchase Index, while the average 30-year mortgage rate gained 2 basis points to 4.16%.

Treasuries were lower, as the yield on the 2-year note gained 1 basis point at 0.99%, the yield on the 10-year note advanced 2 bps at 2.26% and the 30-year bond rate increased 3 bps to 2.98 %.

The only report of note on tomorrow’s economic calendar is weekly initial jobless claims, forecasted to tick slightly lower to a level of 270,000 from the prior week’s 271,000.

Please note: All U.S. markets will trade in an abbreviated session tomorrow, and will be closed on Friday in observance of the Christmas holiday.

Europe rallying ahead of holiday, Asia mixed

European equities rallied nicely, riding the global wave of recent gains and as crude oil prices continued to move higher. In economic news in the region, the U.K. economy expanded less than estimated with a report showing its 3Q GDP annualized rate of growth at 2.1%, missing the Bloomberg forecast of 2.3%, while a measure of total business investment matched expectations of a 2.2% increase for 3Q. Despite the fact that the U.K. economy was one of the best performers in Europe in 2015, the U.K. stock market was one of the worst performers due to a high concentration in the energy sector and very low weighting in technology, the worst and best performing global sectors, respectively. While the U.K. economy seems well prepared for the rate hikes the Bank of England may undertake in 2016, the U.K. stock market may continue to lag reflecting our outlook for lingering weakness in energy and continued strength in technology.

Meantime, Italy announced industrial orders rose 4.6% m/m for October after declining 2.0% the month prior, however, a read on the nation’s retail sales disappointed, showing a m/m decline of 0.3% versus expectations of a 0.3% rise. Also, France reported its 3Q GDP was mostly in line with estimates, though it also announced a surprising decline in consumer spending for November.

Stocks in Asia finished mixed on the heels of the rally in the U.S. yesterday and as oil prices recovered from recent lows. Even though mainland Chinese equities lost ground in the final hour of trade to close lower, the Shanghai Composite is on pace for the biggest gain among global benchmark measures this quarter after the government took actions to prop up equities and cut interest rates six times within a year.

Decoding Devaluations: in response to Fed rate hikes prompting capital outflows from China, we expect China to continue to lower interest rates and the reserve requirement ratio in 2016 to help boost liquidity. China’s economy is likely to continue to slow in 2016, but the shift in currency away from the rising dollar along with rate cuts from the central bank may lend some support to the economy and stocks next year.

Meanwhile, stocks in Hong Kong advanced solidly. India’s S&P BSE Sensex 30 Index was nicely higher, despite some risks to the banking sector as the Reserve Bank of India reported that loan growth at domestic banks slowed in the six months through September and bad loans rose, signaling increased risks to lenders. Elsewhere, equities traded in South Korea and Australia gained ground, while markets in Japan were closed for the Emperor’s birthday holiday.

Dow at the brink of rare feat for first time since 1939

During pre-election years, like 2015, each administration tries hard to impress voters, either via stimuli or copious amounts of lipstick to make even the ugliest pig (aka, the economy) look pretty. Historically, pre-election years sport the best performance numbers of the four-year presidential election year cycle.

On average (based on data going back to 1933), the Dow Jones Industrial Average gains 10.40% during pre-election years.

Not this year.

**click to enlarge**

MW-EB837_Maierh_20151222101802_NS

Unless the Dow climbs back above 17,824, this will be the first pre-election year loss since 1939. What would a 2015 loss mean, and what are the odds of a year-end rally to avoid such a loss?

**click to enlarge**

MW-EB838_Maierh_20151222101804_NS

What would a 2015 loss mean?

As the second chart shows, the track record for election years isn’t bad. Nevertheless, weakness during the normally strong pre-election year may be an indication that this bull market has overstayed its welcome.

According to the Wall Street Journal, at 73 months, the current expansion is longer than 29 of 33 expansions the U.S. economy experienced since 1854. Based on the election-year cycle, 2017 and 2018 have the potential to be dicey. Based on our major market top indicator, 2016 has the potential to be ugly regardless.

Year-end rally or breakdown?

December performance has been unusually dismal thus far. There have been only very few instances where the S&P 500 was down more than 3% in the middle of December and suffered two back-to-back losses (last Thursday/Friday) of more than 1.5%.

Market Insights 12/22/2015

Traders Cheer Gains

U.S. equities traded nicely higher amid a backdrop of some mixed economic and equity news, while volume remained on the lighter side as investors look ahead to the Christmas holiday break.

Treasuries were lower in the wake of a slight downward revision to 3Q GDP and as existing home sales came in shy of estimates, though a read on regional manufacturing surprised to the upside.

Crude oil prices were mixed and gold and the U.S. dollar were lower.

The Markets…

The Dow Jones Industrial Average increased 166 points, or 1.0%, to 17,417

The S&P 500 Index gained 18 points, or 0.9%, to 2,039

In Sector news, Industrials led the way higher posting a 1.38% gain, followed by Financials +1.33% and Consumer Staples +1.30%. All 9 S&P sectors finished higher.

The Nasdaq Composite advanced 32 points, 0.6%, to 5,001

In moderate volume, 848 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.33 to $36.14 per barrel, while wholesale gasoline decreased $0.04 to $1.17 per gallon

The Bloomberg gold spot price declined $5.72 to $1,072.68 per ounce

Domestic output revised modestly lower, housing and manufacturing data surprises

The third and final look at 3Q Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.0%, revised slightly downward from the 2.1% expansion reported in the second report. This matched the Bloomberg forecast. 2Q GDP expanded by an unrevised 3.9%. Personal consumption came in at a 3.0% gain for 3Q, matching the increase previously reported and in line with forecasts. Personal consumption grew by an unrevised 3.6% in 2Q.

On inflation, the GDP Price Index remained at the 1.3% gain previously reported, while the core PCE Index, which excludes food and energy, was also unadjusted at a 1.3% rise, both figures matching expectations.

Existing-home sales in November surprisingly dropped 10.5% month-over-month (m/m) to a 4.76 million annual rate, its lowest level since April, and compared to the Bloomberg forecast of an increase to a 5.40 million pace. October’s figure was adjusted slightly downward to a 5.32 million unit rate from the 5.36 million previously reported. Sales are 3.8% higher y/y. The median existing-home price was 6.3% above a year ago at $220,300, and total inventory fell 3.3% m/m and is 1.9% lower year-over-year. Single-family home sales dropped m/m, but condominium sales were still nicely higher y/y. All four major regions saw declines in sales last month. National Association of Realtors (NAR) chief economist Lawrence Yun cited the pullback in contract signings over the last couple of months for the decline in sales, while also saying, “November home sales without a doubt were heavily impacted by a new federal government rule regarding closing documents,” adding that sales may rebound this month, as “buying interest is there, it’s just that closings are not happening on a timely basis.”

The Richmond Fed Manufacturing Activity Index jumped back into expansion territory (a reading above zero), rising to 6 in November from the unrevised -3 level in October, and compared to the expected increase to 1.

Treasuries were lower, with the yield on the 2-year note advancing 3 basis points to 0.97%, while the yields on the 10-year note and the 30-year bond advanced 4 bps to 2.23% and 2.95%, respectively.

Preliminary durable goods orders for November will likely headline tomorrow’s robust U.S. economic calendar, projected to drop 0.6% m/m, after increasing 2.9% in October. Excluding transportation, orders are expected to be flat, down from the 0.5% advance the prior month, while nondefense capital goods orders excluding aircraft, a proxy for business spending, are expected to decrease 0.2%, after rising 1.3% in October. Also, the docket will offer the latest personal income and spending report, forecasted to show income rose 0.2% m/m during November, down from the 0.4% increase posted in October, while spending is anticipated to have grown 0.3% m/m after rising 0.1% the month prior. Some housing data will come in the form of new home sales, forecasted to have risen 2.0% month-over-month during November to an annual rate of 505,000 units, as well as weekly MBA Mortgage Applications. Finally, we will receive the final University of Michigan Consumer Sentiment Index for December, forecasted to inch higher to 92.0 from the 91.8 registered in the preliminary release.

Please note: All U.S. markets will trade in an abbreviated session on Thursday, and will be closed on Friday in observance of the Christmas holiday.

Europe and Asia finish mixed on lackluster trading

European equities finished mixed in thin trading amid a lack of catalysts heading into the Christmas holiday, with economic news out of the U.S. tempering earlier gains. News on the economic front in the region had little influence, despite household debt in the U.K. soaring last month, nearing levels not seen since before the 2008 financial crisis, and as consumer sentiment measures were unremarkable, with Germany and the Eurozone posting slight upticks to confidence and the U.K. just a shade lower than forecasts. Meanwhile, stocks in Spain rebounded somewhat from yesterday’s solid declines that came on the heels of general elections over the weekend that came to a confusing conclusion. Oil & gas issues were among the best performers amid a slight uptick in crude oil prices. The euro was higher versus the U.S. dollar, while bond yields in the region were higher.

Stocks in Asia finished mixed in a quiet trading session, as a dearth of news coupled with subdued trading heading into the holiday period failed to provide any directional cues. China’s Shanghai Composite Index and the Hong Kong Hang Seng Index both saw modest gains with the conclusion of nation’s Central Economic Work Conference having little impact on sentiment, despite a number of reforms coming out of the meeting that hinted toward more stimulus coming from the government.

Japanese equities ticked lower, showing little reaction to the government’s economic projection for FY2016, which forecasted a solid improvement in GDP growth, as well as an increase in inflation for the year, as last week’s Bank of Japan’s monetary policy meeting, which was viewed by some to be underwhelming, continues to dampen sentiment of aid from the country’s central bank. Elsewhere, stocks trading in Australia, South Korea and India finished higher.

Market Insights 12/21/2015

Stocks Hold Gains to Start Holiday Week

In some relatively choppy action, U.S. equities managed to close higher on the first session of a Christmas-holiday shortened week in which the U.S. and many international markets will be closed on Friday and the US stock market will close early on Thursday.

Treasuries were mostly higher amid an empty economic calendar, while gold advanced, the U.S. dollar was lower and Brent crude oil prices touched an 11-year low.

In equity news, Dow member Walt Disney (down 1.05% on the day) weighed on the blue chip index despite a record breaking debut of its latest Star Wars movie.

The Markets…

The Dow Jones Industrial Average increased 123 points, or 0.7%, to 17,252

The S&P 500 Index gained 16 points, or 0.8%, to 2,021

S&P sectors leading the move higher included Consumer Staples +1.14%, Technology +1.02%, Financials +.99% and Materials +.90%. The only “red” sector were utilities giving back .07%.

The Nasdaq Composite advanced 46 points, or 0.9%, to 4,969

In moderate volume, 922 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil lost $0.25 to $35.81 per barrel and wholesale gasoline decreased $0.06 to $1.21 per gallon

The Bloomberg gold spot price added $14.08 to $1,080.25 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 98.36

Economic calendar dormant, crude oil in focus

Treasuries were mostly higher, with yields lower. The yield on the 2-year note was nearly unchanged at 0.95%, while the yields on the 10-year note and the 30-year bond declined 1 basis point to 2.19% and 2.91%, respectively.

Crude oil prices continued to slide, with Brent touching intraday on an 11-year low at $36.05/barrel and WTI crude closing down at $35.81/barrel, as oversupply worries for the commodity were hit with a double-whammy after President Obama signed a bill to end the U.S. export ban on crude oil that was put in place during the 1970 shortages. The news comes on the heels of the Organization of Petroleum Exporting Countries’ (OPEC) decision earlier this month not to cut production in an attempt to ensure its market share.

Amid the backdrop of the Christmas holiday shortened week in which the U.S. and many international markets will be closed on Friday and the US stock market will close early on Thursday, the economic calendar will shed some light on the housing and manufacturing scenes with the release of existing and new home sales reports coupled with a preliminary read on November durable goods orders, while the third and final look at 3Q GDP is slated for release tomorrow. Most economists feel some headwinds are keeping the U.S. economy from firing on all cylinders. Manufacturing weakened in the second half of the year according to the Institute for Supply Management (ISM) and while manufacturing is important and shouldn’t be ignored, it represents only 12% of US economic activity; while the export market is a relatively small part of overall gross domestic product (GDP).

Additionally, the consumer will be represented with the releases of the final University of Michigan Consumer Sentiment Index for December and personal income and spending figures for November.

Gains in Europe fade, Asia mostly higher

Europe’s bid to bounce back following Friday’s solid declines were dashed, as early gains in stocks quickly turned lower as the political uncertainty surrounding Span was too much for the bulls to handle, and as the pressure on energy stocks persisted in the midst of an 11-year low in crude oil prices. Meanwhile, technology stocks got a boost from the news of Ericsson’s patent agreement with Apple. General elections over the weekend in Spain came to a confusing conclusion, as the ruling Partido Popular party failed to retain a majority in parliament, with strong showings from two new political movements, and as the vote fractured between four parties. As no particular party gained control of the majority of seats, a coalition will likely need to be formed between the groups, adding to the ambiguity surrounding the future in the nation’s direction of government. The euro was slightly lower versus the U.S. dollar, while bond yields in the region were higher.

Stocks in Asia finished mostly higher, bouncing off early losses following the solid declines in the U.S. last week. Chinese equities advanced after one of the nation’s top think tanks recommended monetary policy easing from the People’s Bank of China (PBoC) next year, upping hopes of addition stimulus from the central bank, and as optimism of accelerated reforms by the government for state-owned enterprises (SOEs) within the energy space ran high. As well, the PBoC guided the reference rate for the yuan higher for the first time in nearly two weeks. However, Japanese stocks fell amid some strength in the yen, and continued overhang from last week’s Bank of Japan monetary policy meeting that appeared to disappoint investors. Elsewhere, securities trading in Australia, South Korea and India were higher.

Market Insights 12/18/2015

Weekly Gains Crumble as Stocks Tumble

The U.S. equity markets closed sharply lower for a second-straight session on heavy volume due to quadruple witching, the simultaneous expiration of equity and index futures and options contracts.

Oil prices continued to decline, treasuries and gold were higher and the U.S. dollar lost ground. Corporate earnings reports were mostly upbeat, though economic reads on domestic services and manufacturing activity disappointed.

The Markets…

The Dow Jones Industrial Average tumbled 367 points, or 2.1%, to 17,128

The S&P 500 Index was 36 points, or 1.8%, lower at 2,006

The Nasdaq Composite dropped 79 points, or 1.6%, to 4,923

In heavy volume, 2.5 billion shares were traded on the NYSE and 3.4 billion shares changed hands on the Nasdaq

WTI crude oil lost $0.21 to $36.06 per barrel, wholesale gasoline added $0.01 to $1.27 per gallon

The Bloomberg gold spot price increased $14.74 to $1,065.84 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.6% to 98.69

Markets were lower for the week, as the DJIA decreased 0.8%, the S&P 500 Index lost 0.3%, and the Nasdaq Composite Index declined 0.2%

Preliminary services sector report misses the mark

The preliminary Markit U.S. Services PMI Index fell to 53.7 in December from 56.1 in November, versus the Bloomberg forecast of a decline to 55.9, with a reading above 50 denoting expansion. Markit said this was the weakest level of services sector output since December 2014, amid a sharp downturn in new business growth and a slip in business confidence, while a solid pace of staff hiring was maintained.

The Kansas City Fed Manufacturing Activity Index fell to -9 for December from 1 in November, where economists had expected it to remain, with a reading south of zero depicting contraction.

Treasuries were higher, with the yield on the 2-year note decreasing 4 basis points to 0.95%, the yield on the 10-year note dropping 3 bps to 2.20% and the 30-year bond rate declining 1 bp to 2.92%.

Europe gives back some of the week’s rally, Asia mostly lower

European equities finished noticeably lower, with the Stoxx Europe 600 Index giving back some of its three-day rally, which was the largest since August, per Bloomberg. The global markets continued to assess the impact of this week’s first rate hike in the U.S. since before the financial crisis, while Japan’s central bank’s monetary policy decision appears to have underwhelmed. Telecommunications issues led to the downside amid a drop in shares of Altice NV after the U.S. Justice Department asked for a decision on its proposed acquisition of Cablevision Systems Corp. to be deferred, per Bloomberg. Commodity-related stocks remained in focus, with crude oil prices coming off a two-day drop, while pressure on basic materials issues persisted. Spanish stocks were standout losers as political uncertainty ahead of this weekend’s general elections exacerbated sentiment in the region. The euro, which has fallen as of late, traded slightly higher versus the U.S. dollar, while bond yields in the region moved lower.

Stocks in Asia finished mostly lower following the solid declines in the U.S. as the global markets grappled with the impact of this week’s Fed rate hike, while volatility ensued in Japan following the Bank of Japan’s (BoJ) monetary policy decision. The BoJ kept its main target of 80 trillion yen a year in asset purchases unchanged as expected, but announced an addition to its program for purchasing exchange-traded funds (ETFs), while extending the maturity of Japanese government bond holdings. Japanese securities fell after a short-lived jump on the announcement, with the yen rallying late in the session, suggesting the moves by the BoJ disappointed. Mainland Chinese stocks finished flat and equities trading in Hong Kong declined, with pressure being limited following a report that showed home price increases in the nation widened for November. Finally, stocks in South Korea and India dipped, however, Australian equities ticked higher, despite continued weakness in commodity-related stocks.

WEEKLY RECAP: Stocks lower on week courtesy of Fed rate hike volatilit
y

Stocks finished lowerafter rallying leading up to the midweek monetary policy decision by the Federal Reserve, which delivered the highly-anticipated first rate hike since before the financial crisis. However, U.S. stocks pulled back late in the week with volatility ramping up in the global equity, commodity and bond markets on the heels of the Fed’s decision. The initiation of rate hikes removes the uncertainty around the start date obviously; but does not remove the uncertainty around the path of rate hikes from here. We believe this will remain a focus by investors in 2016; and is likely to contribute to some of the volatility we believe will persist across the equity and fixed income markets. We also believe that the Fed’s approach to its balance sheet will be the focus of investors’ attention for much of the coming year. News from the equity and economic fronts took a back seat to the Fed’s decision, though the recent flare-up in concerns toward the high-yield bond markets remained in focus.

THE WEEK AHEAD: List of next week’s economic reports, checked twice

Amid the backdrop of the Christmas holiday shortened week in which the US and many international markets will be closed on Friday and the US stock market will close early on Thursday, the U.S. economic calendar will shed some light on the housing and manufacturing scenes with the release of existing and new home sales reports coupled with a preliminary read on November durable goods orders. As previously discussed, some headwinds are keeping the U.S. economy from firing on all cylinders. Manufacturing weakened in the second half of the year according to the Institute for Supply Management (ISM) and while manufacturing is important and shouldn’t be ignored, it represents only 12% of US economic activity; while the export market is a relatively small part of overall gross domestic product (GDP).

Additionally, the consumer will be represented with the releases of the final University of Michigan Consumer Sentiment Index for December and personal income and spending figures for November.

Key international reports next week include: China—the Leading Index. Japan—household spending, CPI and PPI, the Leading Index, construction orders, and the All Industry Activity Index. Eurozone—PPI, Import Price Index and GfK Consumer Confidence from Germany, consumer spending and 3Q GDP from France and industrial orders from Italy. U.K.—3Q GDP, current account balance, business investment and public borrowing.