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Waiting for Santa: Will The Week Ahead Offer Any More Gifts For Investors?

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December 27, 2016

(Tuesday Pre-Market) Maybe Santa Claus came early this year. At least it seems that way from a market standpoint.

The so-called “Santa Claus” rally often occurs during the week between Christmas and New Year’s. But considering the dull performance from stocks the week before Christmas following the post-election rally, one school of thought suggests that perhaps the traditional post-Christmas rally got pulled forward a few weeks. Clearly, that’s not something we can know now, but it’s a point worth pondering as we return from holiday celebrations.

If stocks are to stage some sort of a rebound this coming holiday-shortened week, it looks like it might have to be without much help from the economic data side of the equation. Economic reports are few and far between, with pending home sales on Wednesday and Chicago PMI on Friday the highlights. It gets more interesting the week after the New Year’s holiday, when December jobs data loom.

And it’s unclear how many market participants will even be around to keep an eye on the data this coming week. Volume tapered off pretty steadily the week before Christmas, and lack of buying interest seemed to impede the Dow Jones Industrial Average’s (DJIA) as it approached the 20,000 mark.  Consumer discretionary and materials, two of the sectors that had been gaining steadily in the weeks leading up to the holiday, appeared to lose some of their momentum. We’ll see if that changes as the new week advances, but don’t be too surprised if volume remains muted. Resistance for the S&P 500 Index (SPX) remains at around 2272.

As stocks treaded water late last week, the bond market leveled out a bit. Yields on the 10-year Treasury note remained around the 2.55% level, down from their recent high near 2.6%.

Overseas Friday, there was news from Italy, which approved a 20 billion-euro bank rescue program, clearing way for a bailout of Banca Monte dei Paschi, media reports said. Perhaps this might ease some concerns that had been swirling around the Italian banking system. The euro posted some light gains against the dollar, but remained near 14-year lows around $1.04 as last week came to a close.

And from across the Pacific came word that Chinese President Xi Jinping isn’t wedded to China’s 6.5 percent economic growth objective due to concerns about rising debt and an uncertain global environment, Bloomberg reported. China’s growth this year is estimated at 6.7%, and the government has committed to a 6.5% growth rate through 2020. Weakness in China’s economy was one factor that rattled world markets in late 2015 and early 2016.

It’s worth reiterating again: Quiet times like these can offer investors a good chance to review their portfolios and make sure they’re carrying the appropriate risk profile. Even if palm trees and beaches beckon, remember that spending more time on portfolio planning than on vacation planning may help over the long run. That said, here in frigid Chicago, a recliner by the pool sounds pretty good right about now.

S&P 500

FIGURE 1: RESISTANCE DELAYED.

The S&P 500 Index (SPX), plotted through midday Friday on the TD Ameritrade thinkorswim® platform, hasn’t mounted much of a challenge to resistance at 2272. This three-month chart clearly shows the SPX’s slide into the election, its post-election rally, and a flattening out over the last few weeks.  Source: Standard & Poor's. For illustrative purposes only. Past performance does not guarantee future results.

Is Housing Market Getting Tight? One of the many data points late last week was November existing home sales, which increased 0.7% from October to an annualized rate of 5.61 million units. The Briefing.com consensus had been for a reading of 5.5 million. Total housing inventory kept dropping, which could continue to drive up median prices. That, along with rising mortgage rates, could begin to get in the way of affordability for prospective buyers, Briefing.com noted. On another note, data released Friday showed new home sales rising 5.2 percent in November, more than expected and possibly another sign of growing economic strength.

Oil Failing to Ignite: We haven’t talked much about crude oil lately, and that’s because the market has been uncharacteristically quiet over the last week since spiking on the OPEC deal in late November. Prices for U.S. crude seem stuck in the low-$50s per barrel for now, but came under pressure late last week after a bigger-than-expected U.S. weekly inventory build of 2.3 million barrels. Wall Street analysts had been forecasting a drop in supplies.

U.S. Crude Production Starting to Spike: Speaking of crude supplies, U.S. crude production has ticked up from lows seen late last summer, reaching nearly 8.8 million barrels a day last week, the Energy Information Administration (EIA) said. That’s up from below 8.5 million barrels a day back in September, but still below the weekly 9.2 million barrel-a-day output we saw a year ago at this time. The recent uptick in production suggests that U.S. producers have the ability to turn the pumps on again pretty quickly when oil prices rise above $50. And if climbing U.S. production can put a ceiling on prices despite the OPEC cutbacks, as some analysts believe, that would potentially be good news for energy-sensitive companies, including airlines and automakers, among others.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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