Monthly Archives: December 2016

U.S. Market Weekly Summary – Week Ending 12/30/2016

S&P 500 Slips 1.1% on Week But Posts 1.8% Gain for December, 9.5% Increase for 2016

The Standard & Poor’s 500 index ended Friday’s session down 1.1% from a week ago but up 1.8% for the month of December and up 9.5% for 2016.

The market benchmark closed out 2016 at a level of 2,238.83, versus a close of 2,263.79 a week ago. Friday’s closing price also compares with a close of 2,198.81 on the last day of November and a close of 2,043.94 in the last trading session of 2015.

This week’s small decline came as all but one sector moved lower over the four sessions since last Friday; the stock market was closed Monday in observance of Christmas Day. Among the decliners, the technology sector posted the biggest percentage drop of the week, down 1.5%, followed by a 1.4% decline in the financial sector. The one sector that advanced, real estate, was up 1.2%.

The financial sector’s weekly drop came as questions began to spread over how bank stocks may be impacted if President-elect Donald Trump relaxes financial regulations. While bank stocks have posted strong gains since the US presidential election on expectations the financial sector would benefit from eased regulations, deregulation could come with a catch: tougher borrowing limits.

Market Insights 12/30/2016 – That’s all folks

Stocks Close Lower for Final Session of 2016

U.S. stocks closed the final trading session of 2016 lower as complacency lingered and volume and data were light ahead of the New Year holiday weekend.

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

The Markets…

The Dow Jones Industrial Average decreased 57 points (0.3%) to 19,763

The S&P 500 Index lost 10 points (0.5%) to 2,239

The Nasdaq Composite declined 49 points (0.9%) to 5,383

In moderately-light volume, 783 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.05 lower to $53.72 per barrel and wholesale gasoline was $0.01 lower at $1.67 per gallon

The Bloomberg gold spot price shed $5.73 to $1,152.40 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 102.30

Markets were lower for the week, as the DJIA declined 0.9%, the S&P 500 Index lost 1.1% and the Nasdaq Composite decreased 1.5%

Regional manufacturing activity slips

The Chicago Purchasing Managers Index declined more than expected but remained in expansion territory (above 50), decreasing to 54.6 in December from 57.6 in November, and versus the Bloomberg expectation of a dip to 56.8. Growth in new orders and production both decelerated, while inventories and employment both signaled contraction.

Treasuries were higher, with the yield on the 2-year note dipping 2 basis points to 1.20%, the yield on the 10-year note declining 3 bps to 2.44% and the 30-year bond rate slipping 1 bp to 3.07%.

Bond yields have rallied this year in the wake of upbeat economic data, which has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed’s highly expected 25 bp increase to its target for the fed funds rate included a forecast for more rate hikes in 2017 than it had previously projected.

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

Europe modestly higher and Asia mixed to close out 2016

European equities finished slightly higher, amid lingering complacency to close out 2016, which saw mixed performance in the region as U.K. markets stood out with a sharp rally, though Italian stocks fell noticeably on exacerbated banking sector concerns.

Financials led to the upside, as the banking sector got a reprieve, with Italian lender Banca Monte dei Paschi di Siena SpA announcing plans to issue about $15.8 billion of debt to bolster is capital position. The report comes as the company is expected to receive government support after it approved a bank bailout decree that will allow it to increase its public borrowing by 20 billion euros to help fund bank bailouts.

Stocks shrugged off flared-up geopolitical concerns as the U.S. announced new sanctions against Russia, as well as the expulsion of 35 diplomats, due to allegations that the country interfered with the November elections. Russia announced today that it will not retaliate by expelling American diplomats. The euro and British pound traded higher versus the U.S. dollar, while bond yields in the region gained ground.

Stocks in Asia finished mixed in the final trading session of 2016, which has seen divergent performance, while volume continued to be subdued ahead of the New Year holiday, with markets in South Korea closed today. Japanese equities declined despite the yen giving back some of yesterday’s advance. Stocks trading in mainland China and Hong Kong advanced on the heels of yesterday’s upbeat November trade data. Chinese stocks rebounded from recent weakness that has come courtesy of festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S.

Australian securities fell, with financials seeing pressure. Indian equities rallied, along with other emerging markets, continuing to pare recent weakness that has been fostered by earnings and economic concerns, along with government reform uncertainty and monetary policy divergence.

Stocks limp to 2016 finish line

U.S. stocks finished lower on the holiday-shortened final week of 2016, with the markets complacent amid a lack of catalysts and data light ahead of the New Year. The U.S. dollar and Treasury yields pulled back from 2016 rallies, while crude oil prices added to a year-to-date surge. The global markets assessed the wild swings in 2016, with the Fed raising rates in the wake of some signs the economy is gaining steam, while showing some resiliency in the face of heightened political uncertainty in Europe, notably a short-lived negative reaction to the U.K.’s vote to leave the European Union, known as Brexit. All major U.S. indexes rallied sharply on the year, bolstered by the surprise November election, which saw Donald Trump win the Presidency and the Republicans gain control of Congress. On the year, most major sectors jumped, led by energy issues on crude oil’s surge and financials in the wake of the upward charge in interest rates, but real estate stocks dipped and healthcare issues saw red.

The New Year will begin with another shortened-week, but the economic calendar will be robust, with the ISM Manufacturing and non-Manufacturing Indexes being joined by the Fed’s minutes from its December meeting where it raised rates and offered a forecast for a faster pace of hikes in 2017 than it had previously estimated. Other reports include the trade balance, factory orders and Markit’s reads on manufacturing and services sector activity. However, the headlining release will likely be Friday’s December nonfarm payroll report.

Will the Momentum Continue Into 2017?, some of the enthusiasm since the election may have pulled some gains from 2017 into 2016, but we believe the economic momentum seen in the latter half of 2016 will continue into 2017. A compelling support for 2017 is investor flows into U.S.-based funds, helping to keep the bull market alive. The populist trend seen globally last year may not continue and investors should focus on market reactions in the face of political “shocks” and on the improving global manufacturing picture.

International reports due out next week include: Australia—trade balance. China—manufacturing and services data. India—preliminary Q1 GDP estimate. Eurozone—Markit’s business activity reports, CPI estimate, economic confidence and retail sales. Germany—factory orders. U.K.—Markit’s business activity reports.

Market Insights 12/29/2016

Stocks Finish Lower, One Session Left for 2016

U.S. stocks closed with mild losses as crude oil prices slipped lower in the wake of an unexpected rise in oil inventories reported by the government.

Treasuries and gold were higher and the U.S. dollar dipped.

The Markets…

The Dow Jones Industrial Average decreased 14 points (0.1%) to 19,820

The S&P 500 Index lost nearly 1 point to 2,249

The Nasdaq Composite declined 6 points (0.1%) to 5,432

In moderately-light volume, 572 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.29 lower to $53.77 per barrel and wholesale gasoline was unchanged at $1.68 per gallon

The Bloomberg gold spot price added $15.93 to $1,157.60 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 102.65

Jobless claims drop as expected

Weekly initial jobless claims fell 10,000 to 265,000 last week, matching the Bloomberg forecast, as the prior week figure was unrevised at 275,000. The four-week moving average dipped by 750 to 263,000, while continuing claims jumped 63,000 to 2,102,000, north of the estimated level of 2,027,000.

The advance goods trade deficit widened unexpectedly to $65.3 billion in November, from the favorably revised $61.9 billion in October, versus projections calling for the deficit to narrow to $61.6 billion.

Treasuries were higher, with the yield on the 2-year note declining 4 basis points (bps) to 1.22%, the yield on the 10-year note dropping 3 bps to 2.48%, and the 30-year bond rate dipping 2 bps to 3.08%.

Despite today’s dip, bond yields remain elevated in the wake of upbeat economic data, which has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed’s highly expected 25 bp increase to its target for the fed funds rate included a forecast for more rate hikes in 2017 than it had previously projected.

Europe dips, Asia mixed

European equities dipped following the decline in the U.S. yesterday, while volume remained subdued amid a lack of catalysts as the New Year approaches. Financials continued to be hampered as the markets grapple with the expected bailout of struggling Italian lender Banca Monte dei Paschi di Siena SpA. Oil & gas issues modestly added to recent gains in the wake of the strength in crude oil prices as of late, while basic materials slightly gave back a recent jump.

In economic news, U.K. home prices rose much more than expected in December. The euro gained ground and the British pound ticked higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed following the drop in the U.S. yesterday, with global volume, data and conviction remaining hamstrung in the final trading sessions of 2016. Japanese equities dropped with the yen gaining noticeable ground. Mainland Chinese shares dipped and those in Hong Kong rose, with the markets in the world’s second largest economy continuing to grapple with festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S.

Australian securities gained ground as basic materials extended yesterday’s rally. A rise in South Korean stocks was supported by an upbeat read on the nation’s November industrial production, which was partially offset by the government’s downwardly revised 2017 GDP forecast. Indian equities continued to rebound from a recent selloff to a five-week low, courtesy of festering earnings and economic concerns, along with government reform uncertainty and monetary policy divergence.

Market Insights 12/28/2016

Stocks Close Near Lows

U.S. stocks traded lower, as data, volume and conviction continue to be light in the final trading sessions of 2016.

Treasuries, gold, the U.S. dollar and crude oil prices were all higher. Limited domestic economic data revealed an unexpected decline in pending home sales.

The Markets…

The Dow Jones Industrial Average decreased 111 points (0.6%) to 19,834

The S&P 500 Index lost 19 points (0.8%) to 2,250

The Nasdaq Composite declined 49 points (0.9%) to 5,439

In moderately-light volume, 611 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.16 higher to $54.06 per barrel and wholesale gasoline was $0.02 higher at $1.68 per gallon

The Bloomberg gold spot price added $3.44 to $1,142.22 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.3% higher at 103.28

Pending home sales surprisingly decline

Pending home sales fell 2.5% month-over-month in November, versus the Bloomberg projection of a 0.5% gain, and following the unrevised 0.1% increase registered in October. Compared to last year, sales were 1.4% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly rose in November and remained at the highest level since February 2007.

Treasuries were higher, with the yield on the 2-year note ticking 2 basis points lower to 1.26%, the yield on the 10-year note falling 5 bps to 2.51% and the 30-year bond rate declining 4 bps to 3.10%.

Yesterday bond yields added to a recent surge that has come from upbeat economic data, which has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed’s highly expected 25 bp increase to its target for the fed funds rate was delivered along with a forecast for three rate hikes in 2017, up from two in its September projection.

Tomorrow, the U.S. economic calendar will remain light, with the release of weekly initial jobless claims, expected to have declined to 265,000 from last week’s 275,000 level.

Europe and Asia mixed as volume remained thin

European equities finished mixed, with telecommunications stocks leading to the downside, while volume and conviction remained subdued in the holiday-shortened week. Financials continued to be hamstrung by festering concerns toward the European banking sector. The basic materials issues rallied and the energy sector gained ground as crude oil prices modestly added to yesterday’s gains, helping U.K. stocks move higher in their return from an extended holiday break. In economic news, Italian consumer and manufacturing confidence both unexpectedly improved in December. The euro and British pound lost ground on the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed following the modest gains in the U.S. and Europe yesterday, though volume remained subdued amid the holiday-shortened week. Japanese equities finished flat despite some weakness in the yen, while November economic data was mixed as the nation’s industrial production rose by a smaller amount than anticipated and retail sales unexpectedly rose.

Mainland Chinese issues declined as China’s markets continue to grapple with festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S. However, stocks trading in Hong Kong rebounded from a recent bout of selling pressure in its return to action from the long holiday break.

Australian securities were standout winners amid a rally in basic materials listings, while South Korean equities fell on festering political uncertainty in the fallout from the recent impeachment of the nation’s president. Indian stocks finished flat after yesterday’s sharp rebound from a recent selloff that has taken its index to a five-week low, courtesy of festering earnings and economic concerns, along with government reform uncertainty and monetary policy divergence.

Market Insights 12/27/2016

Post Holiday, Markets Resume Charge

U.S. stocks managed to gain ground on light trading volume following the extended Christmas holiday weekend.

The advance for stocks was supported by a 15-year high read for consumer confidence and stronger-than-expected reports on regional manufacturing activity and home prices.

Treasury yields, gold and crude oil prices were higher and the U.S. dollar was nearly unchanged.

The Markets…

The Dow Jones Industrial Average increased 11 points (0.1%) to 19,945

The S&P 500 Index added 5 points (0.2%) to 2,269

The Nasdaq Composite gained 31 points (0.6%) to 5,487

In light volume, 487 million shares were traded on the NYSE and 1.2 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.88 higher to $53.90 per barrel and wholesale gasoline was $0.02 higher at $1.66 per gallon

The Bloomberg gold spot price added $5.86 to $1,139.17 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% higher at 103.04

Consumer Confidence jumps to 15-year high

The Consumer Confidence Index hit the highest level since August 2001 after jumping to 113.7 in December from the upwardly revised 109.4 level in November, and compared to the Bloomberg estimate of 109.0. Sentiment toward the present situation declined but expectations of business conditions for the next six months rose solidly to the highest level since December 2003. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—decreased to 4.4 from the 6.6 posted in November.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.1% gain in home prices year-over-year in October, versus expectations of a 5.0% increase. Month/month, home prices were up 0.6% on a seasonally adjusted basis for October, north of forecasts calling for a 0.5% gain.

The Richmond Fed Manufacturing Activity Index moved further into expansion territory (a reading above zero), rising to 8 for December from the 4 posted in November, and versus expectations of a 5 reading.

Tomorrow, the lone release from the U.S. economic calendar will give us a look at pending home sales from November, expected to have increased 0.5% m/m after rising 0.1% in October.

Treasuries were lower, with the yield on the 2-year note gaining 3 basis points (bps) to 1.23%, while the yields on the 10-year note and the 30-year bond rose 2 bps to 2.56% and 3.13%, respectively. Bond yields have surged as of late as some upbeat economic data has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed’s highly expected 25 bp increase to its target for the fed funds rate was delivered along with a forecast for three rate hikes in 2017, up from two in its September projection.

European stocks tick higher, Asia mixed in light holiday trading

European equities nudged higher, with volume remaining light amid the holiday period and U.K. markets continuing to be on a break. Financials remained hamstrung as the troubled Italian banking sector continued to be in focus after the European Central Bank said struggling lender Banca Monte dei Paschi di Siena SpA needs about twice the amount the company had sought in its recently failed capital increase, per Bloomberg. The ECB’s estimate comes as the government approved a bank bailout decree that will allow it to increase its public borrowing by 20 billion euros to help fund bank bailouts. Healthcare and technology issues helped push stocks slightly higher, along with another dose of U.S. economic data. The euro was little changed and the British pound was lower versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed with continued light volume amid the holiday season, while markets in Hong Kong and Australia remained closed. Japanese equities finished flat, with the yen losing ground in the wake of economic data showing the nation’s core consumer price inflation declined more than expected and household spending unexpectedly fell in November. Mainland Chinese stocks declined despite a solid acceleration in the country’s industrial profits y/y for last month. The data adds to a recent string of upbeat reports suggesting stabilization in the world’s second-largest economy, but these have been met with festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S.

South Korean securities advanced despite a disappointing read on the nation’s consumer confidence in December, while Indian listings rallied. India’s index rebounded from a recent selloff that has taken the index to a five-week low, courtesy of festering earnings and economic concerns, along with government reform uncertainty and monetary policy divergence.

Market Insights 12/23/2016 – Happy Holidays

Little Action Ahead of Holiday

U.S. stocks traded in a tight range, finishing nearly unchanged on light volume for the final trading session ahead of the holiday weekend.

The markets showed little reaction to stronger-than expected reads on domestic consumer sentiment and new home sales.

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

-The Markets-

The Dow Jones Industrial Average increased 15 points (0.1%) to 19,934

The S&P 500 Index added 3 points (0.1%) to 2,264

The Nasdaq Composite gained 15 points (0.3%) to 5,463

In light volume, 505 million shares were traded on the NYSE and 1.1 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.07 higher to $53.02 per barrel and wholesale gasoline was $0.02 higher at $1.64 per gallon

The Bloomberg gold spot price added $3.18 to $1,131.56 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 103.02

Markets were higher for the week, as the DJIA and the Nasdaq Composite both increased 0.5% and the S&P 500 Index gained 0.3%

Consumer sentiment and new home sales both top forecasts

The final December University of Michigan Consumer Sentiment Index was revised to 98.2—the highest since January 2004—from the preliminary level of 98.0, where the Bloomberg estimate called for it to remain. The index was up solidly compared to November’s level of 93.8. The expectations and current conditions components both improved m/m. The 1-year inflation outlook dipped to 2.2% from November’s 2.4% rate, and the 5-10 year inflation projection declined to 2.3% from 2.6%.

New home sales rose 5.2% month-over-month (m/m) in November to an annual rate of 592,000, above forecasts of 575,000 units. The median home price declined 3.7% y/y to $305,400. The supply of new home inventory m/m dipped to 5.1 months at the current sales pace. Sales surged m/m in the Midwest and were up solidly in the West, while flat in the Northeast and down in the South. Compared to last year, sales were solidly higher. New home sales are based on contract signings instead of closings.

Treasuries were mixed with the yield on the 2-year note ticking 1 basis point higher to 1.20%, while the yields on the 10-year note and the 30-year bond dipped 1 bp to 2.54% and 3.11%, respectively.

Bond yields have calmed down as of late from the recent surge in the wake of upbeat economic data and high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered last week as the Fed announced a 25 bp increase to its target for the fed funds rate and forecasted three rate hikes in 2017 from two in its September projection.

**Please note: All U.S. markets will be closed on Monday in observance of the Christmas Day holiday.

Europe and Asia mixed in thin pre-holiday trading

European equities finished mixed, with volume light as some markets had shortened sessions ahead of the holiday weekend. The financial sector was in heavy focus, with a bailout seeming likely for troubled Italian bank Banca Monte dei Paschi di Siena SpA after its recent warning that its recapitalization plan failed and the government approved a bank bailout decree that will allow it to increase its public borrowing by 20 billion euros to help fund bank bailouts.

In economic news, French Q3 GDP growth was unrevised at a 0.2% quarter-over-quarter rate, matching expectations and a rebound from the 0.1% contraction posted in Q2. U.K. Q3 GDP growth was revised higher to a 0.6% q/q pace, matching Q2 increase, and versus projections of it to remain at a 0.5% expansion. The euro was little changed and the British pound was lower versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed, with the global markets remaining complacent ahead of the holiday weekend, which continued to stymie volume along with the Japanese markets being closed for a holiday. The subdued action comes as the U.S. markets have stalled after a sharp rally in the wake of the unexpected November election, while the 20,000 mark for the Dow remained elusive. Chinese stocks declined as pressure persisted amid festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S.

Australian securities were bogged down by weakness in basic materials issues, while South Korean listings finished little changed. Indian equities snapped a seven session losing streak that had come courtesy of festering earnings and economic concerns and monetary policy uncertainty and global divergence.

Markets little changed in final full week of trading for 2016

U.S. stocks ticked higher with global market action subdued ahead of the holiday weekend and some apparent complacency in the wake of the post-election rally and last week’s Fed rate hike. The U.S. dollar’s rally decelerated and Treasury yields dipped on the heels of a recent surge. However, telecommunications stocks were standout winners for the week as post-election optimism regarding tax cuts and potential regulatory changes continued to buoy the sector, while materials and healthcare issues saw modest pressure.

The energy sector dipped, along with crude oil prices, while stronger-than-expected reads on November existing and new home sales were not enough to lift real estate stocks amid the backdrop of the recent jump in mortgage rates. The housing data was not the only upbeat reports as Q3 GDP was revised to a higher-than-expected 3.5% pace of growth, consumer sentiment hit a 12-year high, preliminary durable goods orders suggested business spending may be beginning to pick up, and regional manufacturing data continued to show expansion is accelerating. However, these were met with lackluster reads on personal income and spending, along with Leading Indicators.

Next week, volume and conviction is likely to remain sluggish in the final—shortened—week of trading for the year, with the economic calendar relatively quiet, yielding only notable reports like Consumer Confidence, wholesale inventories, jobless claims and a host of regional manufacturing reports, headlined by the Chicago PMI Index.

U.S. stocks have surged since the election gave control of Washington to the Republicans, which are perceived to be more business friendly. Some of that enthusiasm may have pulled some gains from 2017 into 2016, but we believe the economic momentum seen in the latter half of 2016 will continue into 2017. A compelling support for 2017 is investor flows into U.S.-based funds, helping to keep the bull market alive. The populist trend seen globally last year may not continue and investors should focus on market reactions in the face of political “shocks” and on the improving global manufacturing picture.

Sparse international data due out next week that deserve a mention include: China—industrial profits. Japan—household spending, CPI, retail sales and industrial production. Eurozone—German retail sales.

Market Insights 12/22/2016

Stocks Close Lower

U.S. stocks finished lower for the second-straight day amid a plethora of mixed domestic economic data, while volume continued to wane ahead of the holiday weekend.

Crude oil prices gained ground, the U.S. dollar was flat, gold dipped and Treasuries finished mostly to the downside.

-The Markets-

The Dow Jones Industrial Average decreased 23 points (0.1%) to 19,919

The S&P 500 Index shed 4 points (0.2%) to 2,261

The Nasdaq Composite lost 24 points (0.4%) to 5,447

In moderate volume, 711 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.46 higher to $52.95 per barrel and wholesale gasoline was $0.01 lower at $1.60 per gallon

The Bloomberg gold spot price shed $2.63 to $1,128.98 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 103.07

Final look at Q3 GDP tops forecasts, core durable goods orders exceed expectations

The final look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 3.5%, adjusted up from the 3.2% and the 2.9% expansion posted in the second and first reports, respectively. This compared to the Bloomberg forecast of a revised 3.3% pace of growth. Q2 GDP expanded by an unrevised 1.4% rate. Personal consumption came in at a 3.0% gain for Q3, up from the preliminary estimate of 2.8%, where it was expected to remain. Personal consumption grew by an unrevised 4.3% in Q2.

November preliminary durable goods orders fell 4.6% month-over-month, compared to estimates of a 4.8% drop and October’s upwardly revised 4.8% advance. Ex-transportation, orders grew 0.5% m/m, north of forecasts of a 0.2% rise, and versus October’s favorably revised 0.9% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.9%, versus projections of a 0.4% increase, and following the unrevised 0.2% increase in the month prior.

Weekly initial jobless claims jumped by 21,000 to 275,000 last week, above forecasts calling for an increase to 257,000, as the prior week figure was unrevised at 254,000. The four-week moving average rose by 6,000 to 263,750, while continuing claims increased 15,000 to 2,036,000, north of the estimated level of 2,010,000.

Personal income was flat m/m in November, versus forecasts of a 0.3% rise, and compared to October’s downwardly revised 0.5% increase. Personal spending increased 0.2% last month, just shy of the expected 0.3% increase and versus October’s upwardly revised 0.4% rise. The November savings rate as a percentage of disposable income was 5.5%. The PCE Deflator was unchanged, compared to expectations of a 0.2% increase. Compared to last year, the deflator was 1.4% higher, south of estimates of a 1.5% gain. Excluding food and energy, the PCE Core Index was flat m/m, versus expectations to match October’s unrevised 0.1% gain, and the index was up 1.6% y/y, below estimates of a 1.7% increase. October’s y/y figure was revised to a 1.8% increase.

The Conference Board’s Index of Leading Economic Indicators (LEI) was flat m/m in November, below projections calling for it to match October’s 0.1% increase. Support came from the components pertaining to the yield curve and jobless claims, while the index was bogged down by building permits, average workweek and ISM new orders.

The Kansas City Fed Manufacturing Activity Index for December jumped to 11 from November’s unrevised 1 reading, with a level north of zero depicting expansion.

Tomorrow, the U.S. economic calendar will culminate for the week with the release of November new home sales, expected to have increased 2.1% m/m and December’s final University of Michigan Consumer Sentiment Index, forecasted to remain at the 98.0 preliminary read, up from November’s final level of 93.8.

Treasuries were mostly lower with the yield on the 2-year note flat at 1.19%, while the yields on the 10-year note and the 30-year bond ticked 2 basis points (bps) higher to 2.55% and 3.13%, respectively.

Please note: Most domestic bond markets will be closing early tomorrow at 2:00 p.m. ET.

Europe and Asia mixed amid continued subdued volume ahead of holidays

European equities finished mixed as technology issues saw weakness, while healthcare stocks moved higher and oil & gas listings also gained ground amid the advance in crude oil prices. Volume continued to wane ahead of the holiday weekend and Italian banking concerns lingered, courtesy of increased speculation that Banca Monte dei Paschi di Siena SpA is nearing a bailout in the wake of the Italian bank’s warning that its recapitalization plan may fail. Also the speculation came as the government is expected to approve a bank bailout decree that will allow it to increase its public borrowing by 20 billion euros. In economic news, Italian industrial orders and retail sales for October both topped forecasts. The euro was higher and the British pound was lower versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished mixed as volume continued to downshift ahead of the holiday weekend, with Japanese equities pausing from a recent jump as the yen modestly gave back some of yesterday’s solid gain. Mainland Chinese stocks extended yesterday’s rebound, while those trading in Hong Kong fell as recent pressure returned. Chinese listings have seen pressure as of late amid festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on investments made by insurers—and lingering uneasiness regarding trade relations with the U.S.

Australian securities moved higher with financials showing some strength, while South Korea equities dipped. Indian stocks dropped amid festering earnings and economic concerns and monetary policy uncertainty and global divergence.

The international economic docket for tomorrow will be light, offering consumer confidence from Germany and Q3 GDP from the U.K. and France.

Market Insights 12/21/2016

Rally is Tired, Stocks Finish Lower

U.S. stocks closed mildly lower amid some mixed earnings reports from Dow member Nike and FedEx and as global volume remained subdued with the holidays and New Year approaching.

Crude oil prices were lower in the wake of a surprising rise in the government’s oil inventory report.

Treasury yields and the U.S. dollar were lower and gold was little changed. In domestic economic news, existing home sales for November topped forecasts.

The Markets…

The Dow Jones Industrial Average decreased 33 points (0.2%) to 19,942

The S&P 500 Index shed 6 points (0.2%) to 2,265

The Nasdaq Composite lost 13 points (0.2%) to 5,471

In light-to-moderate volume, 686 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.81 lower to $52.49 per barrel and wholesale gasoline gained $0.02 to $1.61 per gallon

The Bloomberg gold spot price lost $0.81 to $1,131.54 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 102.99

Existing home sales tick higher, remain at near decade high

Existing-home sales in November remained at the highest level since February 2007 after rising 0.7% month-over-month to a 5.61 million annual rate, compared to the Bloomberg forecast of a 5.50 million pace. October’s figure was revised downward to a 5.57 million annual rate. Compared to last year, sales were 15.4% higher. The median existing-home price was up 6.8% y/y at $234,900. Housing supply came in at a 4.0-month pace at the current sales rate, down from 4.3 months in October. Sales in the Northeast jumped and rose in the South, while declining in the Midwest and West.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said the healthiest job market since the Great Recession and the anticipation of some buyers to close on a home before mortgage rates rose from their historically low level have combined to drive sales higher in recent months. Yun added that housing supply at the beginning of the year was inadequate and is now even worse heading into 2017, as a result, both home prices and rents continue to far outstrip incomes in much of the country.

We will get a robust look at economic activity tomorrow as a plethora of reports are slated to be released. The final read on Q3 GDP will be accompanied by the preliminary November durable goods orders report, jobless claims, personal income and spending, the Leading Index and the Kansas City Fed Manufacturing Activity Index.

The MBA Mortgage Application Index rose 2.5% last week, following the previous week’s 4.0% drop. The gain came as the Refinance Index increased 3.0% and the Purchase Index advanced 2.7%. The average 30-year mortgage rate jumped 13 basis points to 4.41%.

Treasuries ticked higher with the yields on the 2-year and 10-year notes, along with the 30-year bond, declining 2 bps to 1.19%, 2.54% and 3.12%, respectively.

Bond yields have surged as of late on upbeat economic data and high expectations for fiscal stimulus, as well as a focus on tax reform and regulatory rollbacks in the wake of the surprise Presidential election results. Also, rates found a second wind last week as the Fed announced a 25 bp hike to its target for the fed funds rate and forecasted three rate hikes in 2017 from two in its September projection. The Fed’s monetary policy decision the Fed noted the “considerable” rise in inflation expectations and combined with the higher “dots plot” in 2017, the statement was seen as more hawkish than expected. Next year could be a year when the Fed’s expectations (dots) actually resemble reality, which was not the case in 2016.

Europe dips on resurfaced banking concerns, Asia mixed

European stocks finished modestly lower, with financials seeing some pressure amid resurfaced banking sectors concerns focused on the festering Italian issues. These concerns were joined by flared-up uneasiness toward Spain following a ruling from the European Union’s top court that may lead to banks returning capital to mortgage customers, per Bloomberg. Oil & gas issues led to the downside with crude oil prices retreating following a bearish oil inventory report in the U.S. Volume continued to decelerate ahead of the holidays and New Year.

The euro was up and the British pound dipped versus the U.S. dollar, while bond yields in the region were mostly higher. The Swedish krona jumped versus the greenback after the nation’s central bank held its monetary policy stance unchanged, with interest rates remaining in negative territory. In other economic news, U.K. public sector net borrowing came in north of expectations for November.

Stocks in Asia finished mixed as global market volume continues to wane ahead of the holidays and year-end, with traders assessing the recent moves in the wake of the surprise Presidential election in the U.S., upbeat economic data and the divergent monetary policy landscape. Japanese equities declined, paring a jump as of late amid some strength in the yen. Chinese stocks advanced, snapping a string of losses on optimism that the government was pushing ahead with reforms pertaining to State-owned Enterprises (SOE). Chinese issues have seen pressure amid festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on investments made by insurers—and lingering uneasiness regarding trade relations with the U.S.

South Korean equities declined, while Australian securities gained ground on strength in basic materials and oil & gas issues. Indian stocks traded lower following the minutes from the Reserve Bank of India’s (RBI) monetary policy decision earlier this month to keep its stance unchanged. The report showed the RBI wanted to assess the impact of the recent government cash crackdown and the rate hike in the U.S., per Bloomberg.

The international economic docket for tomorrow will be relatively light, with reports covering consumer confidence from the U.K., import prices from Germany and industrial orders and retail sales from Italy.

Market Insights 12/20/2016

Dow Flirts and misses at 20,000

U.S. equities added to recent gains, with the Dow within a stone’s throw of breaching 20,000 for the first time ever, getting a boost from continued strength in financials amid the recent surge in bond yields and eased concerns toward the European banking sector.

Markets were able to shrug off flared-up geopolitical concerns following separate attacks in Turkey and Germany yesterday.

Crude oil prices and the U.S. dollar moved modestly higher, while gold lost ground and the U.S. economic calendar was quiet.

The Markets…

The Dow Jones Industrial Average increased 91 points (0.5%) to 19,974

The S&P 500 Index added 8 points (0.2%) to 2,271

The Nasdaq Composite rose 27 points (0.5%) to 5,484

In light-to-moderate volume, 783 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.24 higher to $53.30 per barrel and wholesale gasoline gained $0.03 to $1.59 per gallon

The Bloomberg gold spot price lost $6.78 to $1,131.43 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 103.31

Economic calendar quiet ahead of housing data

Treasuries finished mixed amid an economic calendar void of any major reports today. The yield on the 2-year note ticked 1 basis point lower to 1.22%, while the yield on the 10-year note added 1 bp to 2.56%, and the 30-year bond rate gained 2 bps to 3.14%.

Yields have surged recently, bolstered by upbeat economic data and high expectations for fiscal stimulus, as well as a focus on tax reform and regulatory rollbacks in the wake of the surprise Presidential election results. Also, rates found a second wind last week as the Fed announced a 25 bp hike to its target for the fed funds rate and forecasted three rate hikes in 2017 from two in its September projection. The Fed noted the “considerable” rise in inflation expectations and combined with the higher “dots plot” in 2017, the statement was seen as more hawkish than expected. Next year could be a year when the Fed’s expectations (dots) actually resemble reality, which was not the case in 2016.

Tomorrow, housing data will come into focus, with the releases of MBA mortgage applications and November existing home sales, projected to decline 1.8% month-over-month (m/m) to an annualized rate of 5.5 million units, after jumping in October to the highest rate since February 2007. As noted previously, home prices, the most valuable asset for most Americans, continue to rise, bolstering consumer confidence and our view that economic momentum is building into 2017 and the secular bull market is intact.

Europe gains ground, Asia mixed

European equities finished higher, showing some resiliency in the face of flared-up geopolitical concerns following two separate attacks in Germany and Turkey. Financials supported the advance following some M&A activity in the sector and as the Italian government requested permission to raise its debt limit by as much as 20 billion euros to fund potential bank bailouts. The euro and British pound dipped versus the U.S. dollar, while bond yields in the region were mostly higher. The markets also digested the unchanged monetary policy decision from the Bank of Japan and accompanying relatively improved economic outlook.

Stocks in Asia finished mixed, with the yen weakening to lift Japanese equities, after the Bank of Japan (BoJ) kept its monetary policy unchanged with interest rates remaining in negative territory and no change to its yield curve targeting measures. The BoJ also appeared a bit more upbeat in its statement regarding its economic outlook compared to its statement in November. Australian securities also gained ground and those in South Korea advanced. However, stocks in China and Hong Kong both declined amid festering currency/liquidity concerns in the wake of the U.S. dollar’s recent jump, uncertainty following government crackdowns—notably on investments made by insurers—and lingering uneasiness regarding trade relations with the U.S.

Items set for release on tomorrow’s international economic calendar include Japan’s All-Industry Index, PPI from France, industrial orders from Spain, and public sector net borrowing from the U.K.

Market Insights 12/19/2016

Stocks Post Modest Gains in Lackluster Session

U.S. equities finished modestly higher in subdued action, as investors appear to be posturing ahead of the holiday break and the nearing of the end of year.

Treasuries were higher, as was the U.S. dollar, with a read on December services sector activity surprisingly declining. Crude oil prices were mixed and gold gained ground.

The Markets….

The Dow Jones Industrial Average increased 40 points (0.2%) to 19,883

The S&P 500 Index added 4 points (0.2%) to 2,263

The Nasdaq Composite rose 20 points (0.4%) to 5,457

In light-to-moderate volume, 781 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.11 higher to $53.06 per barrel and wholesale gasoline was unchanged at $1.56 per gallon

The Bloomberg gold spot price gained $4.60 to $1,139.48 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 103.14

Services sector activity surprisingly slips

The preliminary Markit U.S. Services PMI Index for December declined to 53.4 from November’s reading of 54.6, versus the Bloomberg forecast of an improvement to 55.2, though a reading above 50 indicates expansion. Markit said business activity growth eased to a three-month low, but employment posted the strongest rise since March. The release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and its index components are weighted differently.

Treasuries finished higher, as the yield on the 2-year note declined 3 basis points to 1.22%, while the yields on the 10-year note and the 30-year bond fell 6 bps to 2.53% and 3.11%, respectively.

Bond yields are paring last week’s jump that was bolstered by upbeat economic data, along with the Fed’s 25 bp hike to its target for the fed funds rate and forecast for three rate hikes in 2017 from two in its September projection. Today Federal Reserve Chairwoman Janet Yellen delivered a speech on the state of the job market during the University of Baltimore’s Midyear Commencement, reiterating the strength in the job market, saying it is at its strongest in nearly a decade. The Fed noted the “considerable” rise in inflation expectations and combined with the higher “dots plot” in 2017, the statement was seen as more hawkish than expected. Next year could be a year when the Fed’s expectations (dots) actually resemble reality, which was not the case in 2016.

While tomorrow’s economic calendar is void of any releases, and conviction may wane as we near the holiday break, there are a number of reports slated for this week including existing and new home sales, the final read on Q3 GDP, durable goods orders, personal income and spending, the Leading Index, and culminating with the preliminary University of Michigan Consumer Sentiment Index.

U.S. stocks have surged since the election gave control of Washington to the Republicans, which are perceived to be more business friendly. Some of that enthusiasm may have pulled some gains from 2017 into 2016, but we believe the economic momentum seen in the latter half of 2016 will continue into 2017. A compelling support for 2017 is investor flows into U.S.-based funds, helping to keep the bull market alive. The populist trend seen globally last year may not continue and investors should focus on market reactions in the face of political “shocks” and on the improving global manufacturing picture.

Europe mixed amid end-of-year posturing, Asia mostly lower

European equities finished mixed, with the global markets positioning as 2016 nears the end, on the heels of the recent rally that has come courtesy of some upbeat economic data, diverging global monetary policies and the surprise November U.S. election. Financials led to the downside as banking sector concerns continue to fester, though technology and telecommunications issues gained solid ground. Economic data in the region was on the upbeat side, as German business confidence improved to the highest level in almost three years in December, and eurozone construction output rebounded in October. The euro dipped and British pound fell versus the U.S. dollar, while bond yields moved to the downside. The markets awaited a speech later today from U.S. Federal Reserve Chairwoman Janet Yellen, as well as tomorrow’s monetary policy decision from the Bank of Japan.

Stocks in Asia finished mostly lower, with those in Japan snapping a nine-session winning streak, as the yen strengthened from a recent drop. The yen has come under pressure courtesy of the U.S. dollar’s rally in the wake of the surprise November election, upbeat economic data and last week’s Fed rate hike and forecast of tighter monetary policy than previously predicted. Japan reported smaller-than-expected declines in November exports and imports, ahead of tomorrow’s Bank of Japan monetary policy decision. Chinese equities and those traded in Hong Kong declined on the heels of a report showing the nation’s home price gains decelerated in November. Sentiment in China remained hampered, despite a recent string of upbeat economic data, by liquidity concerns that have been exacerbated by the U.S. dollar’s jump and uneasiness regarding government crackdowns on the real estate sector and investments by insurers.

Securities in South Korea and India traded lower, however, Australian listings gained ground following the release of the nation’s budget deficit, which came in a bit smaller than expected and kept ratings agencies from downgrading its credit rating, though S&P Global Ratings said it remained pessimistic and will be watching closely in the coming months, per Bloomberg.