Stock prices retreated and markets cooled some on Monday, after last week’s strong gains took the major market averages to new highs. The Standard and Poor’s 500 slipped 0.11 percent and Nasdaq Composite fell 0.59 percent, as some investors took profits and others appeared content to wait for the outcome of Wednesday’s FOMC meeting announcement.
On Monday, the Dow Jones Industrial Average rose 39.58 points to close at a new all-time high of 19,796.43. The Industrial Average is made up of only 30 companies and is more prone to outperform or underperform the more broadly diversified stock market indexes. In this case, it was energy, consumer staples and health care sectors that gave the Industrial Average its additional lift.
As of Monday evening, the Fed Fund futures were still predicting a 100 percent chance the Fed will raise rates on Wednesday at the conclusion of this week’s FOMC meeting.
Since the last Fed meeting in September the expectations for the economy has shifted. At that time, the Fed reduced their prospects for economic growth and inflations and increased their unemployment expectations into the year end. However, since then the unemployment rate has fallen to 4.6 percent and third quarter economic growth jumped by 2.9 percent, well above expectations. Many use the stock market as a gauge of the economy and investor optimism about the future. The recent market advance has most investors comfortable with a rate increase this week.
With all the good news surrounding the U.S. economy, some are beginning to speculate that the Fed’s rate increase could be as high as 0.5 percent this time around, versus the traditional 0.25 percent hike. Most investors will be paying extra close attention for any indication of the pace of future rate hikes in 2017.
Laif E. Meidell, CMT
We hope that you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
SERVICE SECTOR LOOKS VERY HEALTHY
The Institute for Supply Management’s monthly services index improved 2.4 points in November to a 57.2 reading. Analysts polled by Briefing.com had expected a small gain to 55.6. It was the PMI’s best reading since October 2015, and it marked the 82nd consecutive month of expansion for the non-manufacturing segment of the economy.1
HOUSEHOLD SENTIMENT SOARS
Rising 4.2 points to a mark of 98.0, December’s initial University of Michigan consumer sentiment index came in just a tenth of a point below its most recent (2015) peak. This was one of the index’s three highest readings in the last 12 years. The main reason, in the words of University of Michigan economist Richard Curtin: “More consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys.”2
OIL FINISHES THE WEEK WITH A FLOURISH
WTI crude advanced 1.22% Friday, reaching $51.46 a barrel as Wall Street ended its trading day. Gold and silver respectively slipped 1.11% and 1.03% on the same day; gold ending the week at $1,159.40 an ounce, and silver, at $16.92 an ounce.3
WILL THE DOW HIT 20,000 BEFORE THE END OF 2016?
Investors are starting to wonder. As stocks closed at record highs Friday, the blue chips settled closer to that potential milestone at 19,756.85. The Dow gained 3.06% on the week. Five-day advances for the S&P 500 and Nasdaq Composite were even greater. The Nasdaq rose 3.59% to 5,444.50 during the week, while the S&P climbed 3.08% to 2,259.53. When the closing bell rang Friday, the S&P was up 4.39% month-over-month, the CBOE VIX volatility index down 17.08% in a month.3
Monday, Verifone Systems announces quarterly results. Nothing notable is slated for Tuesday.The Federal Reserve makes an interest rate decision on Wednesday, and in addition to that, Wall Street will react to the November Producer Price Index, reports on November retail sales and industrial output, and earnings from Pier 1 Imports, Progressive and Worthington Industries. November’s Consumer Price Index, and the latest initial jobless claims report arrive Thursday, as well as earnings from Adobe Systems, Jabil Circuit, Navistar, Oracle, and Rite Aid. Friday, the Census Bureau releases data on November groundbreaking and building permits, and Carnival presents a new earnings report.