The week that was…
The market continues to act very well; after a big run up the week prior to this there was some consolidation needed and that is indeed what occurred. There was some temper tantrum knee jerk reaction to the WELL TELEGRAPHED rate hike Wednesday so that was a bit amusing but all in all, the major indexes went nowhere for the week which is exactly what bulls would like to see following a major spike. Some people wrung their hands about the idea that there will be “3 rate hikes” in 2017 (up from the previous forecast of wait for it…. 2). Let’s rewind a year ago … “they” were telling us there would be 4 rate hikes in 2016. Not so much. But this year we may have Trumpflation so we’ll see if 2017 actually brings follow through.
The Federal Reserve raised its key short-term rate on Wednesday, as had been universally expected, but it also forecast three rate increases in 2017, compared with the two that had been anticipated at its previous meeting in September. While the revised outlook could be taken as a positive sign—the Fed has said it would only raise rates when it deems the economy strong enough to withstand such a move—it added an element of uncertainty to the market. In raising rates, the Fed moved its key short-term rate to a range of 0.5%-0.75% from 0.25% to 0.5%. The Fed decision marks the central bank’s first increase in rates since last December, which itself was the first in about a decade.
“The view seems to be that Trump will deliver on his fiscal stimulus promise, the economy will expand sharply, inflation will rise, and the Fed will need to hike rates more than currently forecast, but not by enough to lead to a serious stock market selloff,” wrote Kathleen Brooks, research director at City Index.
The only major economic report of the week was retail sales which only rose 0.1% vs expectations of 0.3%.
While our main focus is U.S. equities it is worth noting Monday saw the largest plunge in the Chinese market since June as there was an apparent on stock purchases by insurance companies. The Chinese market had been on quite a run since late September.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
Love graphics like this – here is the largest company (by market cap) in every state. Interesting changes in 2016 include Dow passing Ford in Michigan and Kraft Heinz passing McDonald’s in Illinois.
The week ahead…
The fireworks are out of the way for the year; it should get quiet from here and trading volume will begin to thin out. Key economic data is a new revision of third quarter GDP to 3.2% (Thu), and November durable goods orders of 4.6% (Thu). November personal income and spending is also expected out that day; with gains of 0.6% and 0.3% respectively expected. Exiting and new home sales will also be released this week on Wed and Fri but not market moving type of data.
Katie Stockton, chief technical strategist at BTIG, believes that stocks are showing signs of exhaustion. “We would look for a significant pullback to unfold next week as short-term overbought conditions take their toll,” she said in a note.
Short term: A nice week of consolidating; the S&P 500 is way more extended than the NASDAQ due to the lag in big cap tech and healthcare which are the type of companies far more prevalent in the NASDAQ.
The Russell 2000 also consolidated.
The NYSE McClellan Oscillator went negative for a moment. If and when this turns negative for a sustained period while the major indexes, we go to caution.
Long term: Here are 5 year charts on the major indexes; for those with this sort of time frame it is going to take a lot of work to get bearish.
Charts of interest:
Oil finally broke over $52 which had been a dead end for many many months.
The rally in bond yields and the U.S. dollar just continues onward…
Gold continues to suffer…
Alexion Pharma (ALXN) dropped 13% Monday after the company’s interim CEO and financial chief stepped down following a probe of sales practices.
Yahoo (YHOO) stunk up the joint Thursday as it fell 6.1% as the company disclosed another security breach that could affect more than 1 billion users.
Brick & mortar has had a few rough years but finally was perking up of late; then JP Morgan decided to pile on Friday with downgrades of Kohl’s, Nordstron, Macy’s & Gap!
Have a great week and we’ll see you back here next Sunday!