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Weekly Market Update – December 4, 2015

After two days of heavy losses the Dow stormed to a 370-point gain Friday on the strength of a solid November jobs report. For the week the Dow was up .2% and for the year the index is up .1%.

Jobs, interest rates, oil and European stimulus measures were the main market protagonists this week.  Jobs and interest rates: the November jobs report released Friday showed the addition of 211,000 jobs in the month, above expectations of 200,000, while the unemployment rate remained unchanged at 5.0%.  The robust number (on the heels of October’s revised 298,000 tally) all but guarantees the Fed will begin to raise interest rates this month (the Fed meets the 15th/16th) as it would have taken a much smaller number (100,000 or so) to give the Fed reason for pause.  The question now is how fast rates will rise.

Oil: OPEC met Friday and hopes were that the body would announce a limit on daily oil production (at 30 million barrels) in an effort to help strengthen oil prices.  This did not happen as OPEC member Iran stated it would not consider any curbs on production until it reaches pre-sanction output.  Iran is set to begin exporting oil in January when the nuclear program-related sanctions are loosened and could add at least 1 million barrels per day of output to OPEC’s current average of approximately 31.5 million barrels per day.  Considering the world is currently producing 2 million barrels a day more than it consumes, analysts are projecting the possibility of oil falling even more before the supply/demand problem is corrected.  OPEC is set to meet again next June but could revisit current policy in January or February.  Oil fell almost 3% Friday to $39.97 on the news.

European stimulus: European Central Bank President Mario Draghi on Thursday announced additional stimulus measure for the Eurozone economy, further lowering interest rates while extending its bond buying program.  The additional measures were deemed adequate in scope and size but markets reacted quite negatively on the news, expecting more.  The Dow fell over 250 points while European bourses were hit harder.  European markets were lower again Friday, capping the Eurozone’s worst week in more than three months.      

Strength in the bond market Friday drove the yield on the 10-year Treasury down 6 basis points (bps) to 2.28%, overall up 5 bps for the week and now up 11 bps for the year.  Trust preferred shares held relatively steady this week amidst the volatility in the equity sector.

Next week’s economic calendar highlights include weekly jobless claims on Thursday and November inflation and retail sales data on Friday.  Expect weekly jobless claims to settle in the 260-270,000 range (from 269,000 this week), inflation to remain in check (still a relative non-issue) and retail sales to show an improvement from October as holiday sales ramp up. 

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