Get The Ticker Tape delivered right to your inbox.

X
Market Update

Data Deluge Starts With Strong GDP Figure, But Trading May Thin Later

Print
December 22, 2016

(Thursday Market Open) Data hounds get their fix today, with gross domestic product, durable goods orders, and personal income among the highlights. Stock futures started rising in pre-market trading, helped in part by the reports.

Gross domestic product (GDP) came in higher than expected at 3.5% in Q3, the government said in its last estimate for the quarter. Wall Street projections had been for a rise in the 3.2% to 3.3% range. Even with threat of a stronger dollar, the economic growth rate is still projecting higher. In this strange recovery that’s taking so long, maybe we’re finally getting to that fast-growth stage we’ve been awaiting.

Meanwhile, durable goods orders fell 4.6% in November, about as analysts had expected. Keep in mind that the October number had been influenced heavily by a huge rise in the transportation component, so the slip in November reflected that comparison. With transportation stripped out, November durable goods orders actually rose 0.5%, above expectations.

Though all this data gives us something to chew on besides holiday cookies, many market participants might take a sniff, see if there’s any action associated with the numbers, and then head for the proverbial exits by lunchtime for a long weekend. If the market does make a move higher, technical resistance at 2272 continues to be the level to watch in the S&P 500 Index (SPX).

The Dow Jones Industrial Average (DJIA) didn’t hit 20,000 on Wednesday, but the VIX fell to a new 52-week low below 11 before rebounding slightly early Thursday. Gold has also been decimated, off 10% since the start of November. The lackluster volatility we’ve seen lately, exemplified by free-falling VIX and gold, suggests that market participants may be feeling somewhat apathetic, not expecting much action in the market during the last weeks of the year

However, it’s prudent to keep an eye on volatility as we approach earnings season next month, because some investors could start hedging for the possibility of a strong dollar. A rising dollar, we recall, can make U.S. goods more expensive for overseas buyers, potentially hurting earnings results.

As for the dollar, it remains near 14-year highs, but the euro made something of a comeback early Thursday and rose above $1.04 as some investors appeared to take profit on their dollar gains. The yen has also been strong lately, and some suggest it may be benefitting from a flight to safety in light of some of the unfortunate world events this week. The Bank of Japan’s (BOJ) decision this week to keep interest rates unchanged, along with its more upbeat outlook, might also play into the yen’s strength.

Even while the yen and euro moved higher, shares of European and Asian stocks fell on Thursday in thin trading. Concerns about the Italian banking system weighed on European indices, media outlets reported.

Market volume sagged Wednesday as holiday-type trading continued, and that could be the case over the coming sessions as well. Quiet times like these can be a good chance for investors to review portfolios and make sure they’re appropriately positioned heading into the new year.

S&P 500

FIGURE 1: GOLD GETTING DECIMATED.

The S&P 500 Index (SPX), plotted through Wednesday on the The S&P 500 Index (SPX), plotted through Wednesday on the TD Ameritrade thinkorswim® platform, has leveled out a bit over the last two weeks, but gold continues to suffer, remaining near 10-month lows. The sharp gold sell-off and weak VIX reflect in part a lack of volatility protection being purchased. Could that begin to turn around as earnings approach? Source: Standard & Poor's. For illustrative purposes only. Past performance does not guarantee future results.

Where’s the Buzz? As the Dow Jones Industrial Average (DJIA) nears the 20,000 mark, it summons memories of early 1999, when the DJIA first hit 10,000 after a long-term rally. At that time, the race for 10,000 was a major event around the country, dominating headlines throughout the media. But today, there’s not as much focus as we approach 20,000, aside from the headlines on financial news networks. Some suggest it could be because a lower percentage of Americans are invested in the markets now compared to back then, suggesting these milestones may not be as meaningful to the general public now. It’s also possible that more people realize the DJIA, composed of just 30 stocks, is a rather unrepresentative index, and the S&P 500 (SPX) provides a broader indication of where the market is positioned.

Struggle in the Cereal Aisle: Some of us still regularly eat our Wheaties, but perhaps not enough, it would seem from General Mills’ (GIS) earnings, reported Tuesday. Quarterly earnings fell 9% and missed expectations, and GIS also expects net organic sales to fall 3% to 4%. The stock fell sharply, but then climbed on Wednesday. On the plus side, the GIS stock has been a pretty good performer over the last year, rising 11%, and the company introduced new offerings, such as organic yogurt and foods without synthetic dyes, to meet changing consumer taste, The Wall Street Journal noted.

Holiday Charge of the Bulls: From the market’s recent performance, it’s not too surprising to hear there’s more bullish sentiment among investors. And that’s exactly what we saw in the latest investor survey from the American Association of Individual Investors. As of mid-December, the organization reported, 44.7% of investors surveyed said they believe the stock market will move higher over the next six months, up 1.5 percentage points from the prior week and well above the 38.5% historic average. Only 32.3% of investors surveyed expected the market to fall over the next six months, but perhaps significantly, negative sentiment was up 5.8 percentage points from the previous week, perhaps a sign that some investors may be concerned about the length and strength of the current rally.

Good Trading,
JJ
@TDAJJKinahan

Daily Swim Lessons: Dive In

Join us for hands-on learning from platform pros with Swim LessonsSM on the thinkorswim® platform. 

Thursday: Leveraging The New Earnings Tab!    

To join, log in to thinkorswim and click Support/Chat > Chat Rooms > Swim Lessons > Watch

Scroll to Top