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November 30, 2015- Will We Have a Santa Claus Rally?

| November 30, 2015
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Stocks closed out the short week mixed on very low volume as investors stayed home for the holidays. For the week, the S&P 500 grew 0.04%, the Dow lost 0.14%, and the NASDAQ gained 0.44%.[1]
The data we got last week suggests that the economy is still chugging along. Investors got their second look at third-quarter Gross Domestic Product and were cheered to learn that the economy grew 2.1% last quarter instead of the 1.5% originally estimated. The revised data shows that businesses spent more than expected.[2]

The holiday shopping season kicked off with Black Friday, and the news so far suggests that retailers may have seen less business than last year. However, a sluggish start to the retail season isn't all bad news. National shopping trends suggest that the Black Friday weekend is becoming less important to retailers, especially as more consumers move to online shopping; industry projections indicate that retailers may see a 2.4% increase in holiday sales this year. Today, of course, is Cyber-Monday when all of the great online deals are to be had.  Chances are if you're reading his then you've been exposed to at least a few of these great deals.

However, despite the improving labor market and economy, Americans may be less eager to open their wallets this year. Overall consumer spending data suggests that Americans are curbing their spending and padding their savings accounts. While we certainly won't argue that prudent financial behavior is a bad thing, flat consumer spending may be a headwind for economic growth.

The big question everyone would like an answer to is "Will we see a Santa Claus rally?"  The answer is, no one really knows.  Its been an abysmal year with the market being a roller coaster to nowhere.  Many big money managers are negative for the year and may try to play catch-up in these next 20 or so trading days.  Currently, it looks like we are locked in a trading range in the S&P 500 from about 2050 to 2125.  Absent any big news we may drift slightly higher into year end.  This January should be interesting as we find out how much the consumer decided to spend playing Santa and whether it was enough to signal if he has indeed recovered from the Great Recession.  Remember, 2016 is also a presidential election year.  There should be plenty of rhetoric to keep the markets guessing. 

The week ahead is packed with important economic events, including the November jobs report, which is the last major employment data the Federal Reserve will review before they meet in mid-December to make a decision about interest rates. If the jobs report shows evidence of continued momentum in the labor market, it could sway the Fed toward raising interest rates for the first time in nine years.[5] Fed chairwoman Janet Yellen will also give several speeches, though it's unlikely that she'll give us too many hints ahead of the December meeting where she is likely to announce the first rate hike in almost 10 years.


ECONOMIC CALENDAR: 
Monday: Chicago PMI, Pending Home Sales Index, Dallas Fed Mfg. Survey
Tuesday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Wednesday: ADP Employment Report, Productivity and Costs, EIA Petroleum Status Report, Janet Yellen Speaks 12:25 PM ET, Beige Book
Thursday: Jobless Claims, Janet Yellen Speaks 10:00 AM ET, Factory Orders, ISM Non-Mfg. Index
Friday: Employment Situation, International Trade

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Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Durable goods jump in October. Orders for long-lasting manufactured goods like autos, airplanes, and appliances, soared 3.0% in October. The increase suggests that demand may be increasing in the last months of the year.[6]

Consumer confidence declines in November. A measure of American sentiment about the economy unexpectedly fell in November as Americans became concerned about their job prospects.[7]

New home sales soar. Sales of newly constructed homes skyrocketed by 10.7% in October, and inventories rose to the highest level in 2010. The increased activity could blunt concerns about a slowing housing market.[8]

Mortgage applications fall as rates increase. A rise in mortgage rates over the last month caused application volume to drop 3.2% last week. However, applications are still up 4.0% over the same period last year.[9]

Gray


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 - Malcolm Forbes

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