The week that was…
Considering the sharp rally the prior week, last week was a very positive one for bulls as we had two nice days of rallying (Tue/Thu) surrounded by very minor losses the other days of the week. All in all what we saw was a rally that was consolidated and built upon. The Russell 2000 – full of domestic companies – had another excellent week as chants of USA! USA! USA! continue there. More interesting than the equity markets were the moves in the bond and currency markets as a December Federal Reserve rate hike now seems nearly assured.
The market is pricing in a 90%+ chance of a rate increase in December at the Federal Open Market Committee’s next policy meeting Dec. 13-14, according to CME Group data.
Janet Yellen testified in front of Congress Thursday dropping all sorts of hints…
In testimony before the House-Senate Joint Economic Committee, Federal Reserve Chairwoman Janet Yellen said an interest-rate hike could come “relatively soon,” further underlining expectations a rate move could come at the central bank’s December meeting. While that has long been seen as a likely time for a rate increase announcement, some investors have speculated on the possibility of a delay following the unexpected election of Donald Trump, which injected a measure of uncertainty into economic outlooks.
And with that I get to unleash one of my favorite all time memes:
The one major economic report this week was retail sales and it looked solid:
Retail sales rose 0.8% in October, making for the best two-month stretch since early 2014. The growth rate was modestly above what analysts had forecast.
Warren Buffet was buying airline stocks.
Buffet wouldn’t tell CNBC why he’s now investing in a sector that in the past he’s labeled a “death trap” for investors . He’s been down on airlines since getting burned on a USAir Group investment in 1989.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
Here are 10 themes for 2017 from the erudite folks at Goldman Sachs*:
“The popular media narrative on the downside risk of a trade war is overstated,” says a team of Goldman Sachs analysts led by Charles Himmelberg, providing our call of the day. “President-elect Trump will take a far more practical approach to U.S. trade policy than his campaign rhetoric would suggest,” the analysts write in their “Top Ten Market Themes For 2017” note.
*if you are not a cool kid like Blain…. DM = developed markets, EM = emerging markets.
The week ahead…
Existing home sales Tuesday (5.5M expected), new home sales Wednesday (600K expected), gobble gobble Thursday, breathless CNBC reporters on air Friday morning from dark parking lots at major New Jersey malls telling us how it’s going to be an incredible Christmas due to 9 extra cars in the parking lot at 5 AM. Fed minutes will be released but with everyone now believing a rate hike is on the horizon, it will be moot.
FYI – markets close 1 PM EST on Friday.
Short term: The S&P 500 is just short of all times highs of August. The NASDAQ touched it’s all time highs of September.
BTIG’s chief technical strategist Katie Stockton said there are signs of “short-term exhaustion” in stocks which indicate a correction is looming. Still, the fact that more than 30% of S&P 500 components have witnessed a breakout following the election suggests that investors should buy back into the market on dips.
The Russell 2000 was the best equity market yet again this week. The stronger dollar will not hurt this index as much as it will the NASDAQ and S&P 500 which are full of multinationals. That said, the Russell has now completely disconnected from the 20 day moving average so needs a period of consolidation…
The Russell 2000 index of small-capitalization companies surged 0.5% to close Friday at a record high, and to extend its win streak to 11 sessions. That’s the longest such streak since the 12-day stretch ending June 5, 2003. The index had soared 13.2% the first 10 days of the current streak, the best performance for a 10-day win streak since the index’s inception in July 1987.
“Short-term overbought conditions could generate consolidation in the days ahead, but we expect the SPX to ultimately follow the Dow Jones Industrial Average and Russell 2000 Index to new highs. Small-cap leadership has re-emerged as breadth has improved,” said Katie Stockton, chief technical strategist at BTIG.
This is the first sustained move over 0 for the NYSE McClellan Oscillator since mid summer! So it’s been a while since we’ve been able to tilt bullish.
Long term: Here are multi year weekly charts. Holding above the purple line on the S&P 500 and the blue line in the NASDAQ are long term positives.
Charts of interest:
Yields continue to surge for a second week.
Investors continue to dump U.S. Treasuries and other developed-world government bonds in anticipation of larger U.S. budget deficits, stronger growth and higher inflation.
Go go U.S. dollar…
Rising yields, meanwhile, make the U.S. dollar more attractive, while the prospect of higher inflation leads to expectations the Federal Reserve might be more aggressive in delivering rate increases than previously expected.
The stock of the week was Dry Ships (DRYS) – an old momentum favorite from yesteryear – which featured a hyuuuugeee (not a real word) rally from $5ish to $100ish (re-read that!), and then gave almost all of it back within days. That’s 1999 NASDAQ type silliness right there.
The Baltic Dry Index, which covers prices for transported cargo like coal and grain, hit its lowest-ever level earlier this year, dropping to 290 points. Here’s a post to Twitter by blogger Jeroen Blokland showing just how far the index has come since — it’s currently trading at around 1,065 points. Blokland says the lift is coming from higher commodity prices and rising shipping volume in recent weeks. “In addition at this point the Trump-stimulus theory is winning from the Trump-trade-impact- theory, which also may help,” he says, noting that the index is up 17% from its Nov. 8, close.
Best Buy (BBY) surged nearly 14% Thursday after results and profits beat forecasts.
Gap (GPS) tanked 17% after the retailer posted a weak outlook late Thursday.
Samsung said at the start of the week it would buy Harman International (HAR) for $8 billion in an all-cash deal.
The Trump trade: build, build, build…
Cmon get happy…. (JPMorgan & Goldman Sachs)
Have a great Thanksgiving week and we’ll see you back here next Sunday!