Stocks End Holiday Week Positive – Weekly Update for December 28, 2015

Markets ended the holiday week on an upbeat note, giving stocks their best week since late November. For the week, the S&P 500 gained 2.76%, the Dow grew 2.47%, and the NASDAQ rose 2.55%.

On the economic front, final data on third-quarter economic growth showed that Gross Domestic Product (GDP) grew 2.0%, down from the previous estimate of 2.1%. The report showed that a slew of global issues cut into demand for U.S. goods abroad; on the positive side, what growth we had was driven by domestic demand.

As the holiday shopping season fades, data shows that retailers are struggling to meet even modest sales goals. The last Saturday before Christmas can often make or break the season with last-minute shoppers flooding stores. However, this year’s sales were tepid, and forecasts predict holiday sales to grow 3.1% over last year, down from 4.1% growth in 2014.

The data also shows that shopping trends are shifting away from brick and mortar stores toward online retailers. Sales at physical stores dropped 5.8% over last year while traffic fell 8.0% between early November and mid-December. In contrast, online sales rose 11.8% between late November and late December. The increased online volume strained supply chains, causing some popular retailers, like Eddie Bauer [EBHI] to miss Christmas shipping deadlines.

The week ahead, sandwiched between two trading holidays, has historically been slow, though surprises are always possible. On the calendar are reports about housing and consumer confidence, which investors are hoping will show that rising fortunes in the labor market continue to translate into spending.

As we enter the final week of 2015, we’re confronted by the fact that markets may close out the year flat. While that’s frustrating for investors who were hoping to see the continued recovery translate into strong stock returns, it’s important to consider the many headwinds markets had to contend with this year: global economic weakness, historic highs, terrorism, and declining commodity prices. Stay tuned for next week’s update where we review 2015 and discuss expectations for the year to come.

Thank you for making 2015 an amazing year for us. We are honored and humbled by the trust you have placed in us as clients, and we look forward to serving you and your loved ones in 2016.

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey
Tuesday: International Trade in Goods, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: Pending Home Sales Index, EIA Petroleum Status Report
Thursday: Jobless Claims, Chicago PMI
Friday: U.S. Markets Closed for New Year’s Day

2015-12-25 Market Performance Chart

HEADLINES:

Consumer sentiment rises to five-month high. Consumers regained their optimism about the U.S. economy at the end of December, pushing a measure of sentiment to the highest level since July.

Durable goods orders flat in November. Orders for long-lasting manufactured goods were flat in November and a measure of business investment fell, indicating that demand remains weak.

Weekly jobless claims close to four-decade low. The number of Americans filing new applications for unemployment benefits fell to a near-42-year low. Though seasonal factors may be affecting the data, the drop is another sign indicating that the labor market continues to improve.

Personal income rises for eighth straight month. Solid wage gains pushed up income in November for the eighth month in a row, raising hopes that consumer spending and economic growth should increase next year.

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