What I’m Watching This Week – 14 December 2015

The Markets (as of market close December 11, 2015)

Investors appeared to be in a selling mood this past week as each of the indexes listed here fell by more than 3.0%. The S&P 500 dropped over 79 points, closing down 3.79%, while the Dow lost over 580 points, finishing 3.26% below the prior week’s close. The Nasdaq closed down 4.06%, while the Russell 2000 suffered the largest decline for the week, finishing a little over 5.0% behind its December 4 closing value. Plunging oil prices and the expectation of a possible interest rate hike were key factors in last week’s volatility. Of the major indexes listed here, only the Nasdaq remains in positive territory year-to-date, as each of the other indexes are below their respective 2014 closing values.

The price of gold (COMEX) rebounded after several weeks of trending downward, selling at $1,073.70 by late Friday afternoon compared to $1,085.80 a week earlier. Crude oil (WTI) prices fell again, selling at $35.36 per barrel by week’s end. The national average retail regular gasoline price decreased for the fourth week in a row to $2.053 per gallon on December 7, 2015, $0.006 below last week’s price and $0.626 under a year ago.

Market/Index 2014 Close Prior Week As of 12/11 Weekly Change YTD Change
DJIA 17823.07 17847.63 17265.21 -3.26% -3.13%
Nasdaq 4736.05 5142.27 4933.47 -4.06% 4.17%
S&P 500 2058.90 2091.69 2012.37 -3.79% -2.26%
Russell 2000 1204.70 1183.40 1123.61 -5.05% -6.73%
Global Dow 2501.66 2381.23 2297.74 -3.51% -8.15%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.27% 2.12% -15 bps -5 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The latest report from the Bureau of Labor Statistics shows the Producer Price Index for final demand increased 0.3% in November. This increase follows decreases of 0.4% in October and 0.5% in September. The November rise in the final demand index can be traced to prices for final demand services, which advanced 0.5%. In contrast, the index for final demand goods moved down 0.1%.
  • Retail food and services sales in November were up 0.2% from October 2015, but 1.4% above November 2014, according to the Census Bureau’s latest figures. Showing marked growth were nonstore retailers, up 7.3% from November 2014, and food services and drinking places, which were up 6.5% from last year.
  • While the combined value of distributive trade sales and manufacturers’ shipments for October fell 0.2% from September, manufacturers’ and trade inventories were virtually unchanged from September, but were up 2.0% from October 2014. The total business inventories/sales ratio based on seasonally adjusted data at the end of October was 1.38. The October 2014 ratio was 1.31.
  • According to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), the number of job openings was little changed at 5.4 million on the last business day of October (5.5 million in September). Hires and separations were little changed at 5.1 million and 4.9 million, respectively. Employment rises when the number of hires exceeds the number of separations. Over the 12 months ended in October 2015, hires totaled 61.0 million and separations totaled 58.3 million, yielding a net employment gain of 2.7 million.
  • Heading into the second month of the U.S. government’s 2016 fiscal year, the deficit for November came in at $64.5 billion. This follows October’s deficit of $136.5 billion. The deficit is 12.6% higher than this time last year. Spending for Medicare and Social Security is up, as is defense spending, adding to the increased deficit.
  • Prices for U.S. imports fell 0.4% in November following a 0.3% decline in October, the Bureau of Labor Statistics reported last week. A decrease in import fuel prices drove the November decline in the price index for overall imports. U.S. export prices declined 0.6% in November, after a 0.2% decrease the previous month. Lower prices for both agricultural and nonagricultural exports contributed to the November decline in overall export prices.
  • Consumer sentiment was up slightly in December (91.8) from November (91.3), according to the preliminary report from the University of Michigan’s Surveys of Consumers.
  • Claims for unemployment insurance jumped during the past few weeks. For the week ended December 5, there were 282,000 initial claims for unemployment insurance, an increase of 13,000 from the prior week’s level. For the week ended November 28, the advance number for continuing unemployment insurance claims was 2,243,000, an increase of 82,000 from the previous week’s revised level of 2,161,000. The advance seasonally adjusted insured unemployment rate increased from 1.6% for the week ended November 21 to 1.7% for the following week.

Eye on the Week Ahead

When the Federal Open Market Committee meets this week, the hot topic will certainly be whether to raise interest rates, and if so, by how much and when. If the committee announces a rate hike, how will the equities markets respond?