By Pete Biebel, Vice PresidentPrint This Post
Over the past several days, and just before the official beginning of winter, millions of drivers from Kansas to Connecticut were forced to reacquaint themselves with their winter driving skills, or lack thereof. With much of the Northeast experiencing freezing rain, sleet and snow, many highways, streets and cul de sacs were slicker than greased glass. Like some of the more unfortunate drivers, upon realizing that they’re skidding toward a ditch, the market temporarily forgot about the glories of the election results and suddenly focused on more immediate issues. Like some less skillful drivers realizing that the hill ahead was steeper and icier than expected, the market averages were unable to find traction to sustain their climb higher and slid back downhill.
All of the major averages were essentially unchanged to lower for the week. In a week with two major distractions, Wednesday’s Fed announcement and Friday’s quadruple witching expiration, neither event seemed to have a significant impact. Perhaps the most important contribution of the two events was that they, at least temporarily, shifted the market’s focus away from the Trump honeymoon back to more long-lasting factors.
As expected, the Fed bumped their short-term Fed Funds rate a quarter-point higher on Wednesday. The Dow Jones Industrial Average (DJIA) drove to its high of the week (and what, so far, is its all-time intra-day high near 19,967) in the moments immediately following the Fed announcement, but its drive up to clear the 20,000 level hit a slick spot and the index veered sharply lower from there.
Nine of the eleven S&P sectors had net, post-election gains when the week began, but eight of those nine slid lower last week. Of those nine, only the Healthcare sector, which had been looking a little sickly with just a 0.78% post-election gain, was able to inch a little further ahead last week. Only two other sectors were able to make forward progress for the week, Consumer Staples and Utilities, both of which are still below their Election Day levels.
The Dow Jones Transportation Average has been heading up the highway at high velocity since the election. It hit a new all-time high on Wednesday, December 7, and confirmed a “Dow Theory” buy signal that helped to fuel the market gains late last week. Apparently, the road ahead became impassable; Transports reversed direction and headed south all week. As of Friday’s close, that average was more than 2.5% below its closing level of Thursday, December 8.
Two other groups that had been speeding forward since the election, small-cap stocks and the Financial sector, also lost their footing and slipped backward. Both the Russell 2000 Index of small-cap stocks and the S&P Financial Sector slipped back about 1.5% last week. And, the leader of the pack, the NASDAQ ABA Community Bank Index, which had appreciated more than 30% as of a week ago, gave back close to 2.5% last week.
You don’t need a traffic ‘copter to see what’s going on. The post-election celebration, which had clearly been driving too fast for conditions, finally throttled back a bit. Not surprisingly, some profit-taking was evident in the leading groups. Meanwhile, some of the laggards were able to close the gap between themselves and the stronger groups. No serious damage has yet been done, and we shouldn’t expect things to spin out of control this week in what is traditionally a bullish atmosphere.
More reliable indications of the market’s future direction are not likely to emerge until after the holidays. Over the next week or two, visions of sugarplums will be dancing in the heads of the financial media. They’ll be drooling over the prospects of DJIA hitting the 20,000 level. Whether or not that level is breached in the next several days is probably more a matter of trivia than an indication that all is well. If it happens, it’ll get lots of press, but what happens in the weeks following the blessed event will be more telling for the market’s future path.
Away from stocks, other markets displayed a little more durability in their trends. Interest rates continued to push higher; 10-Year U.S. Treasury bonds hit their highest yields in more than two years. That helped the Dollar to stay on its upward course, also hitting multi-year highs. With higher rates and a stronger Dollar, Gold continued to lose its luster, dipping to its lowest level in about 10 months.
A week ago Sunday, news of an agreement among OPEC and non-OPEC nations to reduce oil production caused crude oil prices to spike to above $54 per barrel, but that rally quickly ran out of gas. Following the early Monday high, crude also hit a slick spot and ended the week back near $52 per barrel.
This week’s economic calendar has few if any items that are likely to get a lot of traction. The GDP and Jobless Claims data on Thursday have the best potential to roil what is otherwise likely to be a fairly quiet market coming into the holiday weekend. Happy holidays to you and yours!
|Economic Report Calendar||Prior Reading||Consensus|
|Wednesday 12/21/2016||Existing Home Sales, SAAR||5.600mm||5.535mm|
|Thursday 12/22/2016||Durable Goods Orders, M/M||+4.8%||-4.0%|
|Durable Goods Orders, ex-Transportation, M/M||+1.0%||+0.2%|
|GDP, Q/Q, SAAR||+3.2%||+3.3%|
|Personal Income & Outlays, Income, M/M||+0.6%||+0.3%|
|Personal Income & Outlays, Spending, M/M||+0.3%||+0.3%|
|Friday 12/23/2016||New Home Sales||563K||580K|