Investors came back to the market in a good mood and ready to move stock prices higher on Monday. Though the major market averages closed higher on the day, prices were off their intraday highs reached in the first half of the day. By the closing bell the Standard and Poor’s 500 was still holding on to gains of 0.20 percent and the Nasdaq Composite was higher by 0.37 percent. Though over the past four trading days the S&P 500 has closed with higher lows, a positive sign, it has also generally had lower highs, which can be a problem.
Monday’s market behavior seems to fit within the recent pattern that indicates the major averages are consolidating, or coiling, in preparation for their next major move. Though we never know exactly what direction or how long the next major market move will be, at the moment the odds favor prices resuming their trend once the consolidation is over, which is higher.
The only real news on Monday came from a speech given by Federal Reserve President, Janet Yellen, at the University of Baltimore’s mid-year commencement. In her comments, Ms. Yellen
said that wage growth is picking up “and weekly earnings for younger workers have made strong gains over the past couple of years.” She went on to say that job prospects for young workers are “very good” right now for new graduates, saying that layoffs are low and job openings are high, while pointing to the 4.6 percent unemployment rate.
Nervous investors interpreted President Yellen’s comments as a call for inflation. Bond prices experienced a sharp selloff shortly after Ms. Yellen’s comments, but bonds generally recovered by the closing bell as prices tried to form a bottom.
Laif E. Meidell, CMT
We hope that you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
FED RAISES RATES, PLOTS THREE 2017 HIKES
Federal Reserve policymakers unanimously chose to raise the benchmark interest rate by a quarter point last week. That was expected; less expected was the central bank’s adjustment to its 2017 dot-plot. Fed officials now see three rate hikes next year instead of two. The move to the new target range of 0.50-0.75% sent the dollar and bond yields higher Wednesday – the yield on the 2-year note quickly touched a peak unseen since August 2009. Stocks suffered only moderate losses after the announcement. Federal Open Market Committee members now forecast economic growth of 2.1% in 2017 and 2.0% in 2018.1
RETAIL SALES TICK UP, PRODUCER PRICES RISE
Economists, polled by Briefing.com, had expected a 0.4% October advance for retail purchases; the gain was only 0.1% instead, and 0.2% minus car and truck sales. The Producer Price Index rose 0.4% last month after a flat October; the core PPI also posted a 0.4% increase. Inflation pressure remained steady for the consumer: both the headline and core Consumer Price Index advanced 0.2% in November.2
HOUSING STARTS FALL FROM 9-YEAR PEAK
Groundbreaking declined 18.7% last month as winter arrived, with single-family starts down 4.1%. The Census Bureau also reported a 4.7% November decline in building permits.3
DOW ADVANCES, WHILE NASDAQ, S&P 500 RETREAT
A relatively calm trading week ended with the Dow Jones Industrial Average at 19,843.41, 0.44% higher than it had closed the previous Friday. Both the S&P 500 and Nasdaq Composite saw small weekly losses; the Nasdaq descended 0.13% to 5,437.16, while the S&P declined 0.06% to 2,258.07. Over on the NYMEX, light sweet crude settled at $51.94 a barrel Friday; gold at $1,135.60 an ounce.4
Lennar announces Q4 results Monday. CarMax, Darden Restaurants, FedEx, General Mills, Nike, Steelcase, and Valspar all report earnings on Tuesday. Wednesday, investors assess the latest existing home sales numbers and earnings from Accenture, Bed Bath & Beyond, Finish Line, Micron Technology, Red Hat, and Winnebago. Thursday offers new initial claims data, reports on November consumer spending and durable goods orders, the November core PCE price index, the last estimate of Q3 GDP, and earnings from Cintas. Friday brings November new home sales figures and the final University of Michigan consumer sentiment index of 2016.