Dow Jones Industrial Average
Standard & Poor’s 500
Week 49 Recap
Like Maxwell Smart used to say, “Missed it by that much.” Less than a point separated the S&P 500 from its ninth straight winning week, but what a finish to the week it was. Sparked by an encouraging employment report for November, the S&P 500 jumped 20 points, or 1.1%, on Friday.
The week in review pretty much begins and ends with Friday since the market was preoccupied all week with the question of whether the November employment report would prompt the Fed to make a tapering decision at its December meeting. The answer to that question was basically yes, no, and maybe.
The report, which featured a 203,000 increase in nonfarm payrolls and a drop in the unemployment rate to 7.0% from 7.3% that was not driven by a decline in the labor force participation rate, was solid enough to convince participants that the labor market is improving but not strong enough necessarily to force the Fed’s hand into tapering this month.
Whatever unfolds, the overriding message of the market on Friday was either that it didn’t believe there would be a tapering this month or that it doesn’t fear a tapering this month (or next month). Both the 10-yr note and the stock market pushed higher on Friday while gold prices and the US Dollar Index were little changed.
They were moves that stood in contrast to the tapering angst that existed earlier in the week after the release of the better-than-expected ISM Index, higher-than-expected auto sales, a 25% increase in new home sales for October, lower-than-expected initial claims, and an upwardly revised 3.6% GDP growth rate for the third quarter (more on that in a bit).
Every sector finished higher on Friday and so did every Dow component. For the week, the best-performing sectors were the utilities (+0.8%), technology (+0.7%), consumer staples (+0.1%), and energy (+0.04%) sectors, so a bit of a cyclical and counter-cyclical mix, which probably reflected some hedging with respect to the tapering idea and the thinking that the market is due for a pullback of some kind after its extraordinary rally.
Still, it was clear that money wasn’t in a hurry to leave the stock market this week. That may have been owed to the thinking that another buy-the-dip run would be seen — and sure enough that ended up being the case.
Now, in terms of the GDP report, it wasn’t as robust as it appeared to be at first blush. The change in inventories accounted for 1.68 percentage points of the change in GDP; moreover, personal consumption expenditures were up just 1.4% (lowest since Q4 2009) while real final sales, which exclude the change in inventories, were revised down to 1.9% from 2.0% in the first estimate.
It is almost certain that there will be some inventory payback in the fourth quarter that will act as a big drag on fourth quarter GDP. Briefing.com’s current forecast calls for growth of just 0.8%.
The Fed will be cognizant of that inventory drag (New York Fed President Dudley spoke about it in a speech a few weeks ago), which is one reason why there is still room to think it will hold off on a tapering decision for the time being. Another reason embedded in the November employment report is the fact that the number of people unemployed for 27 weeks or more accounted for 37.3% of the unemployed, up from 36.1% in October, demonstrating the ongoing difficulty of finding a new job after being out of work for so long.
Emergency unemployment benefits are due to expire January 1 if Congress doesn’t strike an agreement to extend them. On a related note, there were reports this week that negotiators are close to striking a budget agreement that will prevent another government shutdown, but that emergency unemployment benefits are creating a sticking point in those talks.
The budget negotiations promise to be a focal point in the week ahead along with the Retail Sales report for November and Q3 GDP data for Europe.
After the past 2 weeks with alot of FOMC member’s speeches and testimony, the market is getting increasing fearful. A sign of fear would be the counter-cyclical counters leading the week and the low volumes for the past week.
I made the wrong market call one after another for the DMA, this are just signs of the market getting irrational and sentiment driven. I could no longer draw on rational factors to deduce the direction. This market is sentiment and news driven, I shall let them decide the direction and do day trades on them. My gut feel is that the bulls will continue to push the market higher by abit this week.
Direction for Week 48 – UP
I called a UP week for the week leading up to Black Friday plainly because for Thanksgiving and a short week tends to be traditionally bullish. I was right but the short trading session on Friday saw sell down in the last hour. This came as a shock as investors are not holding their positions over the weekend for the fear of god knows what factor.
Then came Cyber Monday, where the bullishness of the stock market was supposed to be felt and this was supposed to be the turning point and the traditional starting bell of the bull run up to next year. But we didnt have the rally. What followed Cyber Monday was a continuous sell down with sideways volatility mid week and the week ended with a strong rally on Friday to bring the indexes to nearly breakeven.
VIX climbed throughout the week amidst the bearish and volatile market. It made as high as near 12% on Wednesday and lost majority of the gains on Friday where the market rallied beyond 1%. VIX close the week at 13.79, almost similar to the close of last week.
Leadership was seen in Utilities, Technology and Consumer Staples. They made 1.08%, 0.37% and 0.16% respectively for the week. On the other hand, Laggards were Consumer Discretionary and Financials. They lost 0.72% and 0.42% respectively. As with the market, the rest of the sectors ended almost flat, losing between 0.03% and 0.16%.
This week, bears took over the market. And it was also showing signs of bearish leadership to see Utilities and Consumer Staples (both counter-cyclical sectors) to lead the market while the cyclical sectors lagged. This is unfounded because this period is supposed to be the arrival of bulls to kick start the best 6 months of the market.
For the week, Nasdaq was leading with a slight gain of 0.06%. Following closely behind was S&P 500 with a small loss of 0.04%. DJI was lagging behind the other 2 indexes with a loss of 0.41%. With almost the same observation for the past weeks, Technology is really the domain of the bulls recently.
Dow Jones Industrial Average slid for the 1st for days of the week, and wipe out 3 days of losses with a solid bull session on Friday. While the volumes are supporting the decline, it’s not doing the same for the rally on Friday where volumes dipped. Looking at this, it does seems more to me of a short covering and profit taking for the short sellers, coupled with the bullish season in play now. Moving forward, it remains to be seen if the 20D SMA will be able to act as support for the uptrend to come. And the intraday high of 16174.51 made last Black Friday will be tested and acting as a resistance should the bulls continue their advancement this week. Going just by the technicals, I believe we do have some upside in the week to come.
Likewise on the S&P 500, it found support of its 20D SMA and bounced off it to wipe out almost 3 days of losses in Friday’s bullish session. Moving forward, if it rallies and advance, it’s likely to meet a resistance of the intraday high of 1813.55 made last Friday. And should it correct, it’s likely to find support off the 1770 levels. Having said this, there is no technical reason nor economic reason for it to tank, especially in this season of the bulls. I would like to see it breaking the high and continuing rallying.
Of the 3 major averages, Nasdaq sports a different look. It has broke out of its 5 year channel, and seemed to found support and closed outside of its 5 year channel. It’s also trending steeping upwards in it’s past 6 months channel. Should it correct this week, it should find support off its recent support level of 4004.76. The upside to NASDAQ is also limited to the upper bank of its 6 months channel at the 4125 level. With NASDAQ leading the 2 other averages in the year of 2013, I believe we are not going to see any form of correction soon, at least not in this season of the bulls.
10-Yr: +03/32..2.874%.. USD/JPY: 102.86.. EUR/USD: 1.3703
The Week in Review: 30y Hits Highest Level Since August 2011
- Treasuries were pressured this week as mostly better than expected data ignited fears the Fed may begin to scale back its bond-buying scheme as early as the December meeting.
- Friday’s strong nonfarm payroll report (203K actual v. 188K expected) saw the unemployment rate fall to 7.0% (7.2% previous), and capped off a strong week of data.
- ISM Index (57.3 actual v. 55.5 expected), construction spending (0.8% actual v. 0.3% expected), new home sales (444K actual v. 420K expected), GDP – Second Estimate (3.6% actual v. 3.0% expected), and Michigan Sentiment (82.5 actual v. 75.1 expected) all topped forecasts.
- ISM Services (53.9 actual v. 55.0 expected) and personal income (-0.1% actual v. 0.3% expected) were the only notable misses.
- The latest Fed Beige Book suggested, “The economy continued to expand at a modest to moderate pace from early October through mid-November.”
- This week’s selling had the biggest impact on the belly of the curve, where yields climbed as much as +12bps.
- The 5y jumped +11bps, and managed to breakout above the 1.450% area that had acted as a lid since the middle of September. Friday’s early selling ran the yield up to 1.545% before settling the day @ 1.505%.
- Aggressive selling in 10s ran the benchmark yield through key resistance in the 2.800% area. On the week, the 10y climbed +12bps to finish @ 2.883%. Traders continue to monitor the 3.000% area that corresponds with the September highs.
- Outperformance at the long end made for a +7bp move in the 30y. The yield on the long bond hit a high of 3.976%, its highest since August 2011, in response to the jobs report; however, it fell to 3.917% by Friday’s cash close.
- A steeper curve developed over the course of the week as the 2-10-yr spread widened to 258bps.
The Week Ahead
- There is no data on Monday. Fed Chairman Ben Bernanke will attend a meeting of the Financial Stability Oversight Committee (14:30). Richmond’s Lacker will give his economic outlook in Charlotte, NC (12:50); STL’s Bullard will be on his home turf discussing monetary policy and the economy (13:05); Dallas’ Fisher will be in Chicago, IL to speak on “U.S. and Regional Economic and Banking Trends” (13:15) and to discuss Fed policy and the economy (18:30).
- Data kicks off for the week on Tuesday with wholesale inventories and JOLTS – Job Openings (10). Treasury will auction $30 bln 3y notes.
- Wednesday’s data is limited to the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will hold a $21 bln 10y note reopening. Treasury Secretary Lew will testify on the IMF in front of the House Financial Services Committee (10).
- Data picks up on Thursday with initial and continuing claims, retail sales, retail sales ex-auto, import/export prices (8:30), and business inventories (10). Treasury will reopen $13 bln 30y bonds.
- Friday will see PPI and core PPI (8:30).
Macroeconomic Data (Week 50)
With the exception of Tuesday and Wednesday, we have some form of important news and data scheduled to be released. Monday will see FOMC’s Bullard speaking about economic outlook and monetarty policy at the CFA Society of St. Louis. Questions will be expected and I am expecting her to give a neutral view of tapering if it comes into question.
Thursday will have the Core Retail Sales and Retail Sales figures, as well as the Unemployment Claims numbers. Unemployment Claims numbers is expected to come in at around 321K while any number lower than this should send a mix feel to the market. If UN rate continues to fall, which stands at 7% now, there is a real possibility that the FED will announce tapering in Jan.
Friday will have the PPI numbers where the change in the price of finished goods and services sold by producers are measured. It’s likely to stay flat.
Moving forward, we are approaching Xmas and heading into the last 2 weeks of the year 2013! This year has certainly be the best year for the bulls with markets gaining 20-30%. Many investors and Wall Street bankers will have fat pockets with their obscene bonuses. Technically, there is no reason or signs for a correction to kick in this week. And on the horizon, there is also no news or macroeconomic data that is likely to rock the confidence of the bulls. I will definitely go with the flow here.
Direction for Week 50 – UP