What I’m Watching This Week – 12 December 2016

The Markets (as of market close December 9, 2016)

Following a week of tepid movement in the major stock market indexes, equities picked up the pace last week, reaching new record highs. Growth in financial company and bank stocks led the way as both the large-cap Dow and S&P 500 rose over 3.0%. Some analysts suggest that financial stocks could climb further next week if the Fed raises interest rates as anticipated. The small-cap Russell 2000 surged once again last week, jumping almost 6.0% over its prior week’s value. As money pours into equities, long-term bond prices continue to fall. The yield on 10-year Treasuries climbed 8.0 basis points, marking the third consecutive week of rising yields.

The price of crude oil (WTI) maintained its value, closing last week at $51.48 per barrel, down just $0.48 from the prior week’s closing price of $51.96 per barrel. Gold (COMEX) remained volatile as its price fell again last week, closing at $1,161.40 by late Friday afternoon, down from the prior week’s price of $1,179.20. The national average retail regular gasoline price increased to $2.208 per gallon on December 5, 2016, $0.054 more than the prior week’s price and $0.155 higher than a year ago.

Market/Index 2015 Close Prior Week As of 12/9 Weekly Change YTD Change
DJIA 17425.03 19170.42 19756.85 3.06% 13.38%
Nasdaq 5007.41 5255.65 5444.50 3.59% 8.73%
S&P 500 2043.94 2191.95 2259.53 3.08% 10.55%
Russell 2000 1135.89 1314.25 1388.07 5.62% 22.20%
Global Dow 2336.45 2461.61 2551.65 3.66% 9.21%
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% 2.38% 2.46% 8 bps 20 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 November 2016 Non-Manufacturing ISM® Report On Business® revealed that economic activity in the services sector expanded in November. The Non-Manufacturing Index came in at 57.2% compared to October’s 54.8%. This is the highest reading since the 58.3% NMI® in October 2015. The Non-Manufacturing Business Activity Index increased to 61.7%, 4.0 percentage points higher than the October reading. The Employment Index increased 5.1 percentage points in November to 58.2%. However, the New Orders Index and the Prices Index fell in November by 0.7 percentage point and 0.3 percentage point, respectively. Some of the non-manufacturing industries included in this survey are Agriculture, Mining, Utilities, Construction, Retail Trade, Transportation & Warehousing, Finance & Insurance, Entertainment & Recreation, Accommodation & Food Services, and Real Estate.
  • While it’s a bit dated, the Bureau of Economic Analysis October report on international trade in goods and services was released last week. According to the report, the goods and services deficit widened by over 17% in October over the prior month. The trade deficit was $42.6 billion in October, up $6.4 billion from $36.2 billion in September, revised. October exports were $186.4 billion, $3.4 billion less than September exports. October imports were $229.0 billion, $3.0 billion more than September imports. Year-over-year, the goods and services deficit has decreased $8.8 billion, or 2.1%, from the same period in 2015. Exports decreased $58.7 billion, or 3.1%. Imports decreased $67.5 billion, or 2.9%.
  • According to the Job Openings and Labor Turnover (JOLTS) report from the Bureau of Labor Statistics, the number of job openings fell about 1.7% in October from September. There were 5.534 million job openings in October compared to an upwardly revised 5.631 million job openings in September. Job openings increased in health care and social assistance, but decreased in professional and business services, federal government, and mining and logging. The number of hires and separations also dropped in October. There were 5.099 million hires in October, down about 22,000 from September’s hires. Total separations in October were 4.875 million — a decrease of about 61,000 compared to September. Year-over-year job openings are up 2.1%, while hires are down 2.2%.
  • The preliminary results from the University of Michigan’s Surveys of Consumers show the Index of Consumer Sentiment up 6.2 percentage points from November. According to the report, the surge is due to consumers’ initial reactions to the results of the presidential election. Consumers were more upbeat about the economy as the Current Economic Conditions Index rose almost 5.0 percentage points, while the Index of Consumer Expectations climbed from 85.2% in November to 88.9%.
  • In the week ended December 3, the advance figure for seasonally adjusted initial unemployment insurance claims was 258,000, a decrease of 10,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate fell to 1.4%. The advance number for seasonally adjusted insured unemployment during the week ended November 26 was 2,005,000, a decrease of 79,000 from the previous week’s revised level.

Eye on the Week Ahead

The Federal Open Market Committee meets next week and it is expected to raise the federal funds rate for the first time since last December. Reports available next week are from three indicators of inflationary trends — the Producer Price Index, retail sales, and the Consumer Price Index.