What I’m Watching This Week – 5 December 2016

The Markets (as of market close December 2, 2016)

Robust gains that marked the last few weeks turned to modest declines last week. Gains in energy shares following OPEC’s announcement to cap production weren’t enough to totally offset a regression in small-cap and technology stocks. Both the Russell 2000 and the Nasdaq dropped over 2.0%, while the Dow maintained its value, but little more.

The price of crude oil (WTI) increased by last week’s end, closing at $51.96 per barrel, up from the prior week’s price of $45.96 per barrel. The increase follows OPEC’s agreement to cap petroleum output. Crude oil prices are expected to reach $60 per barrel in the near term. Gold remained volatile as the price of gold (COMEX) fell again last week, closing at $1,179.20 by late Friday afternoon, down from the prior week’s price of $1,186.10. The national average retail regular gasoline price decreased to $2.154 per gallon on November 28, 2016, $0.001 less than the prior week’s price but $0.095 more than a year ago.

Market/Index 2015 Close Prior Week As of 12/2 Weekly Change YTD Change
DJIA 17425.03 19152.14 19170.42 0.10% 10.02%
Nasdaq 5007.41 5398.92 5255.65 -2.65% 4.96%
S&P 500 2043.94 2213.35 2191.95 -0.97% 7.24%
Russell 2000 1135.89 1347.20 1314.25 -2.45% 15.70%
Global Dow 2336.45 2466.14 2461.61 -0.18% 5.36%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 2.35% 2.38% 3 bps 12 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

  • There were 178,000 new jobs added in November, with employment gains occurring in professional and business services. The unemployment rate fell to 4.6%, down from October’s rate of 4.9%, and marks the lowest reading since August 2007. The drop in the unemployment rate can be tied, in part, to a fall in the labor force participation rate, which decreased 0.1 percentage point to 62.7%. The number of unemployed persons declined by 387,000 to 7.4 million. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.9 million and accounted for 24.8% of the unemployed. Over the past 12 months, the number of long-term unemployed was down by 198,000. The employment-population ratio held at 59.7%. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in November. For the month, average hourly earnings for all employees on private nonfarm payrolls declined by $0.03 cent to $25.89, following an $0.11 increase in October. Over the year, average hourly earnings have risen by 2.5%.
  • The gross domestic product, which measures the net value of goods and services produced by the nation’s economy, increased at an annual rate of 3.2% in the third quarter of 2016, according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, the GDP increased 1.4%. The first estimate of the third-quarter GDP showed an increase of 2.9%. The difference between the first and second estimates is due to an increase in personal consumption expenditures (consumer spending), exports, private inventory investment, and federal government spending. The GDP growth was offset by several factors, including an increase in imports, which are a subtraction in the calculation of GDP. Gross domestic income (the sum of incomes earned and costs incurred in the production of GDP) increased 5.2% in the third quarter. Another important aspect of the latest estimate of the GDP is the growth in after-tax corporate profits, which increased 3.5% from the second quarter.
  • The personal income and outlays report from the Bureau of Economic Analysis provides valuable information on consumers’ household income from all sources, what consumers are buying and how much they’re spending, and inflationary price trends. In October, personal income increased $98.6 billion, or 0.6%, over September. Disposable personal income (income less taxes) jumped $86.5 billion, or 0.6%, while personal consumption expenditures (value of the goods and services purchased by consumers) gained 0.3%. The personal consumption expenditures price index (a preferred inflation measure of the Fed) increased 0.2%. Excluding food and energy, the PCE price index increased 0.1%. An almost 20.0% increase in wages and salaries contributed to the jump in personal income for the month. About two-thirds of the total economic output in the United States is attributable to consumer spending. As consumer income and spending escalates, so does economic growth, evidenced by the 3.2% gain in the third-quarter GDP.
  • Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 54.1 in November, up from 53.4 in October, marking the strongest improvement in business conditions since March 2015. Improvements in new orders and production led to sustained acceleration in the manufacturing sector, according to the report.
  • The Institute for Supply Management’s PMI also increased in November, coming in at 53.2%, which is 1.3 percentage points higher than October’s reading. The New Orders Index increased 0.9 percentage point, the Production Index jumped 1.4 percentage points, while the Employment Index decreased 0.6 percentage point. This report, coupled with the Markit survey, evidence strengthening in the manufacturing sector, which had been lagging for much of the year.
  • Consumer confidence improved in November, according to The Conference Board Consumer Confidence Index®. The index jumped from 100.8 in October to 107.1 in November — its highest reading since July 2007. The Present Situation Index increased from 123.1 to 130.3, while the Expectations Index improved from 86.0 last month to 91.7. According to Lynn Franco, Director of Economic Indicators at The Conference Board, “A more favorable assessment of current conditions coupled with a more optimistic short-term outlook helped boost confidence. . . . With the holiday season upon us, a more confident consumer should be welcome news for retailers.”
  • In the week ended November 26, the advance figure for seasonally adjusted initial unemployment insurance claims was 268,000, an increase of 17,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended November 19 was 2,081,000, an increase of 38,000 from the previous week’s unrevised level.

Eye on the Week Ahead

Although the stock market has been booming since the presidential election, trading has been relatively light. With the passing of Thanksgiving, the Christmas holiday season is in full swing, which may keep trading volumes down as investors focus on holiday plans and shopping.