Courtesy of Blain.
The week that was…
The market needed a pause after the frenetic post election rally, and it finally arrived this week. The pullback was mild as bulls would like. This week’s “fear of the week” was Italy’s political referendum which happened today… and was rejected.
Italian voters were asked in a referendum to approve changes to the country’s constitution, which have been called the most sweeping since the end of World War II. The proposed reforms would cut the Senate’s size by two-thirds and reduce powers held by the country’s 20 regional governments. Italian Prime Minister Matteo Renzi believes the changes will aid efficiency in parliament.
The reforms could also “make it easier to implement important legislation (such as measures to assist the country’s ailing banking sector) without the threat of a government collapse during periods of political disagreement,” said Peter Donisanu, global research assistant at Wells Fargo, in a note published Nov. 11.
So at times when the market needs to pull back a bit, it finds a reason; this was a pretty weak knee one but it is sufficient.
As I type this S&P futures are PLUNGING 0.3% on the “no” vote. Hide the children.
(only our older readers will understand the gif above)
The other main story was OPEC which finally agreed Tuesday to a cut in production…. on paper. If any of their members actually follow through in reality and don’t try to cheat – who knows.
OPEC has agreed to cut daily production by 1.2 million barrels a day to 32.5 million. The cut will come into effect in January. OPEC kingpin Saudi Arabia will tak thee biggest output reduction at about 486,000 barrels a day, according to Al-Sada. On top of the 1.2 million-barrels-a-day OPEC cut, key non-OPEC producers have agreed to scale back their production by 600,000 barrels a day, with Russia taking on half of that cut.
Impressive, 1.2M barrels!??! Pssst come closer, I’ll tell you a secret….. that is 1% of global production.
Economic data was largely positive this past week. Monday, the second reading of gross domestic product showed the economy grew at the fastest pace in over two years in the third quarter, while a measure of consumer confidence soared in November to prerecession levels.
Gross domestic product expanded at a 3.2% annual rate in the Commerce Department’s second reading, released Tuesday. That is the strongest pace since the second quarter of 2014. It beat the consensus estimate of a 3.1% growth rate. Consumer spending rose 2.8% in the quarter, stronger than the original estimate of 2.1%. The consumer sector accounts for two-thirds of the economy, and that has been bolstering economic growth for several quarters.
Thursday, the ISM manufacturing index rose to 53.2 in November from 51.9 in October. A reading above 50 indicates expansion.
Friday came the employment data, and while the top line # of jobs created (178K) was a tad light the unemployment rate plunged to 4.6%. Average hourly earnings slumped 0.1% in November after a sharp 0.4% rise in the prior month. This was the first decline since December 2014. Earnings are up at a 2.5% annual rate.
Fun fact: Quietly under the surface a lot of car loans are going bad.
The number of subprime auto loans sinking into delinquency hit their highest level since 2010 in the third quarter, with roughly 6 million individuals at least 90 days late on their payments. It’s behavior much like that seen in the months heading into the 2007-2009 recession, according to data from Federal Reserve Bank of New York researchers.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
Impress your friends and neighbors by telling them there is a 65% chance the stock market rises in 2017. Guess what – no matter what happens this year (gain or loss) that is more or less ALWAYS the probability. Check this out!
Over the 119 calendar years since the Dow Jones Industrial Average was created in the late 1800s, for example, it has risen 78 times, or, 65.6% of the time. Whenever the market rose during a given year, its odds of rising the next year were a virtually identical 65.4%. Following years in which the market fell, in contrast, its odds of rising the next year were 65.9%. Many believers in market momentum find those stats surprising, since they expect a gain in one year to translate into above-average odds of rising the next year. Contrarians are also surprised, since they expect a loss in a given year to create above-average odds of rising the next.
The week ahead…
A lot of news last week; things look EXTREMELY quiet this week as we will have some hand wringing about the Italian no vote and implications on Italian banks while the Federal Reserve rate hike is bandied about. Most of the key economic news items are out of the way but we’ll have ISM non manufacturing Monday with expectations of a reading of 55.5. With earnings season not set to launch until January, we are in a bit of a lull.
Index charts:
Short term: The S&P 500 broke above 2016 highs post election but now is right back to those levels. The NASDAQ is farther below as this Trump rally has largely ignored big cap tech stocks.
The Russell 2000 pulled back some 2.5% and is still nowhere near it’s 20 day moving average.
We entered the week massively overbought on the NYSE McClellan Oscillator since mid summer! That condition was fixed this week.
Long term: Here are longer term daily charts. The NASDAQ a bit back above those 2015 highs.
Charts of interest:
Here is the oil chart; prices are back to areas they have stalled all year:
Another bad week for retail in a largely poor year for brick & mortar.
American Eagle (AEO) plummeted 12% on heavy volume Wednesday after the retailer reported a miss in same-store sales.
Thursday Express (EXPR) dropped 20% after the apparel and accessories retailer beat fiscal third-quarter expectations but provided a downbeat outlook for the current quarter. Meanwhile, Guess (GES) slumped 10% after the fashion retailer late Wednesday cuts its earnings outlook for the year.
Have a great week and we’ll see you back here next Sunday!
