U.S. stocks fell Friday, snapping a broad-market streak at six weekly wins. Stocks felt the tug from weak energy prices and revived nerves centered on a Federal Reserve that continues to signal a possible interest rate hike in December even as spotty economic data and weak oil prices appear to be capping big jumps in economic growth.
The upcoming week features plenty of data on housing, factories, and inflation that could further color expectations for the scope and speed of any change to Fed interest rate policy. When the Fed does move, it will be the first rate hike in nearly a decade. See the full economic calendar below.
Volatility returned across several markets but the stock market’s “fear gauge,” the CBOE Volatility Index (VIX) briefly poked above the psychologically significant “20” line before pulling back. The S&P 500 (SPX) traded down to a level not seen since October 22 (figure 1). Oil prices fell 8% for the week as both supply and demand data hit the commodity’s price, while gold tracked its fourth straight down week.
Where’s That Consumer?
So, hiring data has been improving but the consumer, it seems, still hesitates to spend at any level that could move the needle on gross domestic product.
Friday’s trading reflected a worrisome tone among select retailers. Nordstrom (JWN) shares tumbled after missing Wall Street’s profit and sales estimates for its Q3. And get this: J.C. Penney Co. (JCP) reported Street-beating sales growth, citing strength in all of its merchandise divisions, and lifted profit estimates for the year. But shares were still lower, sucked into the weakness seen across most mall-based retailers as the holiday season looms.
The coming week features the results of Wal-Mart Stores (WMT) and Home Depot (HD) on Monday, Target (TGT) on Tuesday, and Best Buy (BBY) on Wednesday, among others. Will they too fail to deliver the pre-holiday cheer that bulls were banking on?
Will the Data Meet Fed Expectations?
Watch for more economic data to test what may be an increasingly louder response from known Fed hawks.
Cleveland Fed President Loretta Mester on Friday said the U.S. economy can handle a rate hike, according to financial press covering a speech. In remarks prepared for delivery to The City Club of Cleveland, Mester said history will ultimately judge the Fed's unconventional actions since the financial crisis based on the U.S. central bank's ability to demonstrate that there is a way out. "The time to start that demonstration is quickly approaching," Mester said. Economic growth should rebound to a 2.5%-2.75% annual rate over the next 15 months, from the 1.5% rate in Q3, the Cleveland Fed President said.
This week features the release of Fed October meeting minutes, which can be combed for more of the nuances divided hawks and doves.
Overall, some observers are questioning what will be the growth engine to justify the Fed’s potential move. The energy sector, for one, has taken its lumps.
International Energy Agency data last week revealed oil stockpiles grew to a record of almost 3 billion barrels because of strong production in OPEC and elsewhere. This "massive cushion has inflated" even as the saturated global oil market adjusts to roughly $50 a barrel oil, the agency said in its November report. Notably, the IEA predicts that supplies outside OPEC will decline next year by the most since 1992 as low prices reduce the motivation to produce in the U.S. shale industry. U.S.-traded crude futures fell to near $40 a barrel Friday.
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