The major market averages finished mixed on Monday with the Dow Jones Industrial Average up a mere 0.11 percent and the Nasdaq Composite down 0.36 percent on the day. On the surface, the major market averages gave the appearance that investors needed a rest, after leaping higher following last week’s presidential election. However, just as a story can have both a primary story line and a subplot, on Monday the primary story line drifted while the subplot was still exciting. In the case of the stock market, the subplot was the Russell 2000 small company stock index up 1.26 percent on Monday, and now higher by 9.45 percent over the past five trading days.
The recent move higher in small company stocks tells us two things, first, that the liquidity in the stock market is favorable, and second, that we may be entering a period when the stock market outperforms other assets, thanks to the small company leadership we are seeing now.
Investors shunned bonds for a sixth day in a row on Monday with the Bloomberg 7-10 Year U.S. Treasury Bond Index down 0.58 percent. There has been a major shift in interest rates over the past week with U.S. 10 Year Treasury Yield closing at 2.22 percent on Monday versus 1.86 percent just five days ago. Many investors are now asking themselves whether this is the pivot point in the bond market that many have been waiting for, where interest rates now begin to rise.
Additionally, higher interest rates usually lift currency prices, so it’s not surprising to see the Deutsche Bank Long U.S. Dollar Futures Index up 0.98 percent on Monday, and now very close to its 12-month high.
Laif E. Meidell, CMT
We hope that you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
BLUE CHIPS HIT ALL-TIME HIGHS
Donald Trump’s unexpected presidential election win did not rattle Wall Street. Instead, bulls saw the prospect of greater federal outlays and less business regulation in the near future. The Dow Jones Industrial Average closed at a new record Friday: 18,847.66. The Dow 30 had its finest week since 2011, gaining 5.36%. As for the S&P 500, it advanced 3.80% in five days to 2,164.45. Settling at 5,237.11 Friday, the Nasdaq Composite rose 3.78% on the week.1,2
FED’S FISCHER: TIME FOR GRADUAL TIGHTENING
Stating that the central bank “appears reasonably close to achieving both inflation and employment components of its mandate,” Federal Reserve vice chairman Stanley Fischer noted Friday that “the case for (raising interest rates) gradually is quite strong, keeping in mind that the future is uncertain and that monetary policy is not a preset course.” Some analysts believe sizable infrastructure spending under a Trump administration could spur inflation. On Friday, Fed fund futures contracts implied an 81% chance of a hike at the central bank’s December meeting.3
CONSUMER SENTIMENT ROSE BEFORE ELECTION
Displaying a reading of 91.6, the University of Michigan’s preliminary November household sentiment index climbed 4.4 points off its final October mark. Analysts polled by Bloomberg forecast an initial November reading of 87.9 for the gauge.4
CRUDE, GOLD PRICES DECLINE
As Wall Street rallied, key commodities had a tough week. Oil and gold were among them. The yellow metal settled at $1,227.40 an ounce on the COMEX Friday, leaving it down 3.75% at the end of this second week of the month. Oil ended the week at $43.12 a barrel on the NYMEX; it has sunk 7.78% so far in November.5
Advance Auto Parts and Smart & Final present Q3 results Monday. October retail sales numbers arrive Tuesday, plus earnings from Agilent Technologies, Aramark, Beazer Homes, Dick’s Sporting Goods, Diebold, and Home Depot. Wednesday, investors consider earnings from Cisco, L Brands, Lowe’s, NetApp, and Target, plus the October Producer Price Index. Thursday, Federal Reserve chair Janet Yellen testifies on the economic outlook in Congress, the October Consumer Price Index is released, October groundbreaking and building permit numbers are announced, and America’s Car-Mart, Applied Materials, Best Buy, Bon-Ton, Gap, Intuit, J.M. Smucker, Ross Stores, Spectrum Brands, Staples, Stein Mart, Walmart, and Williams-Sonoma offer earnings. Abercrombie & Fitch and Foot Locker announce Q3 results Friday.