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Archive for November, 2015

Weekly Market Update – November 20, 2015

The Dow closed 91 points higher Friday amidst a plethora of positive retail-sector news and heightened expectations of a December interest rate hike.  For the week the Dow was up 3.4% and for the year the index is now flat.

Nike announced a large share repurchase program Friday while Abercrombie & Fitch reported third quarter sales and revenues above expectations.  Foot Locker also produced solid third-quarter earnings.  Gap lowered its full-year EPS outlook though its third-quarter earnings, announced earlier this month, were above expectations.  Shares of all four companies closed higher and helped boost stocks in general.

After the market close on Thursday, Fed Vice-Chairman Stanley Fischer’s remarks hinted strongly at a December interest rate increase while Fed minutes released earlier in the week showed most officials in agreement with December action.  The Fed meets December 15th and 16th and is expected to raise rates by 25 basis points.

In Europe, stocks were mixed as markets digested both new terrorism news (Mali) and European Central Bank President Mario Draghi’s comments regarding the possible implementation of additional stimulus measures in December.  Draghi stated that the ECB “will not hesitate” to act further if the Eurozone economy continues to lag behind its growth and inflation targets.

The yield on the 10-year Treasury rose 1 basis point Friday to 2.26%, down 2 bps for the week and now up 9 bps for the year.  Trust preferred shares were solid performers.

Oil closed at $40.49 Friday amid volatile trading, down 25 cents for the week.  Oversupply concerns continue to negatively affect prices as US crude inventories rose by another 252,000 barrels this week, bringing November US supply to a level not seen in at least 80 years.  In addition, OPEC and Russia continue to produce crude at high levels while Iranian oil could hit the market in the first quarter of 2016 as sanctions are lifted.  OPEC meets December 14th.

Next week’s economic calendar highlights include October existing home sales on Monday, the second estimate of Q3 GDP and a consumer confidence report on Tuesday and weekly jobless claims, October new home sales and another consumer confidence report on Wednesday.  Expect the October home sale numbers to be up slightly from September, consumer confidence to improve from the prior reading, Q3 GDP to rise to 2.1% from the prior 1.5% reading and weekly jobless claims to settle in the 260-270,000 range (from 271,000 this week). 

Markets and our offices will be closed next Thursday in observance of the Thanksgiving holiday.  On Friday, markets are open only until 1pm though our office will be open the entire day. 

Weekly Market Update – November 13, 2015

The Dow fell 203 points Friday on continued global growth concerns.  For the week the Dow was down 3.9% and for the year the index is now down 3.4%.

A spate of lackluster economic data took center stage Friday.  In the US, inflation data came in weaker than expected while October retail sales came in below forecasts, hinting of a slowdown in consumer spending that could depress fourth-quarter economic growth.  Despite the lack of inflation and soft consumer spending, the Fed is still expected to begin raising interest rates in December. 

In Europe, third quarter Eurozone GDP came in at .3%, slightly below expectations of .4%.  France and Germany reported in-line results while Portugal, Italy and Greece lagged.  The GDP report comes a day after European Central Bank President Mario Draghi hinted that the ECB could implement additional monetary easing measures in December, including another round of quantitative easing and an interest rate cut, given Eurozone inflation remains muted and overall economic growth tepid. 

The yield on the 10-year Treasury fell 4 basis points Friday to 2.28%, down 5 bps for the week and now up 11 bps for the year.  Trust preferred shares held steady in spite of the downturn in stocks.

Oil fell $1.01 Friday to close at $40.74 (its lowest level since late August) in part due to a report released by the International Energy Agency in which the IAE projected oil demand in 2016 to fall to 1.2 million barrels per day, well below the 1.8 million per day realized so far this year.  The report also showed that oil inventories of OPEC countries reached a record 3 billion barrels at the end of September.  In the US, oil production increased slightly last week to 9.2 million barrels a day while the number of drill rigs in operation rose (by two) for the first time in eleven weeks.  The high levels of supply, demand projections and current global economic growth concerns continue to heavily pressure the commodity.

Next week’s economic calendar highlights include October inflation and industrial production (factory output) data on Tuesday, October housing data on Wednesday and weekly jobless claims on Thursday.  Expect inflation to hold steady from September, industrial production to increase slightly from the prior reading, the housing data (housing starts and building permits) to show a decline in activity from September and weekly jobless claims to settle in the 260-270,000 range (from 276,000 this week).  The latest Fed minutes will also be released on Thursday.

Weekly Market Update – November 6, 2015

The Dow managed a gain of 47 points Friday on the heels of a better-than-expected October jobs report.  For the week the Dow was up 1.4% and for the year the index is now up .5%.

The October jobs report showed the addition of 271,000 jobs in the month, well above expectations of 180,000 and the largest gain since December of 2014.  The August and September jobs numbers were adjusted upwardly by a combined 12,000 while hourly wages rose 9 cents, a 2.5% year-over-year increase – the largest since 2009.  The unemployment rate fell to 5.0%, its lowest rate since 2008. 

The strong jobs report greatly increases the odds of a December rate hike by the Fed, as it was thought that any jobs number above 150,000 would prove enough to drive Fed action.  The hourly wage data strengthens this view as it gives the Fed confidence that inflation will move toward its target rate of 2%.  In addition, the unemployment rate, now at 5.0%, is in a range consistent with the Fed’s definition of full employment.  The Fed’s next policy meeting is December 15th and 16th. 

The yield on the 10-year Treasury rose 9 basis points Friday to 2.33%, up 18 bps for the week and now up 16 bps for the year.  This put some pressure on the fixed income securities.  Oil fell 2% Friday to settle at $44.29 due to a rally in the dollar after the release of the jobs report.  The dollar is up 5% since the beginning of October and closed Friday at a 6 ½-month high against a basket of currencies.  The weekly drill rig report showed the number of drilling rigs in operation fell by 6 (its 10th-consecutive weekly decline) to a five-year low, though an inventory report earlier in the week again showed a weekly build in US oil supply. 

Next week’s economic calendar highlights include weekly jobless claims on Thursday and October inflation data, October retail sales and a consumer confidence reading on Friday.  Expect weekly jobless claims to settle in the 250-260,000 range (from 269,000 this week), inflation to remain in check, retail sales to show a slight uptick from September and consumer sentiment to hold steady in relation to the prior reading.  The return of colder weather may help natural gas prices. 

Weekly Market Update – October 30, 2015

Market volatility was relatively muted this week as Fed announced continued accommodative policy on Wednesday and some of America’s largest companies reported positive quarterly results.  Despite Friday’s negative of -0.52% and -0.48% for the S&P 500 and Dow Jones on Friday, these same indices were up slightly at 0.10% and 0.20% on the week.

Though the Fed continued its zero interest rate policy, it mentioned that a December interest rate hike was on the table.  Unsurprisingly, they clarified that its December decision will be heavily dependent on the economic data announced before then.  Prior to the Federal Open Market Committee statement, economic analysts forecasted a 33% chance of the Fed raising rates in December.  After the statement on Wednesday, the forecasted probability of a rate increase jumped to 47%.  However, a December rate hike is still far from a guarantee as it would be the first increase since 2006.  As we head into the holiday season, employment data and retail sales data will be watched meticulously as a possible precursor to the Fed’s December decision.

There were a number of significant corporate earnings this week.  Apple, the largest public company in the world by market cap, reported its record fourth quarter results, spurred by the annual release of its flagship iPhones.  Not only was it historic from Apple’s own perspective (record Q4 results), but it also set the record for largest annual profit in corporate history, beating out ExxonMobil’s 2008 performance.  The stock was up 4.12% on Wednesday as a result.  Through Wednesday, 171 of the 253 S&P 500 companies that have reported results have beat analyst expectations according to S&P 500 Capital IQ.  This 68% analyst beat rate compares favorably to the historic 66%, suggesting an outperformance from a corporate performance perspective.

Oil prices outperformed this week as US supply continues to contract along with the Baker Hughes rig count.  These two contributors helped propel oil higher by about $1.60 per barrel to $46.38 per barrel as of the time of the report.  However, natural gas prices dipped this week on concerns over weather forecasts for a warm winter because of El Nino and prolific well results due to technological improvements in the fracking process.

Important economic data out next week includes the Initial and Continuing Jobless Claims on Thursday November 5th, and the Non-Farm Payrolls, Unemployment Rate, Hourly Earnings, and Average Workweek numbers for the month of October on Friday.  These data points will be extremely informative for the Fed as they consider the December interest rate decision.


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