The major averages ended last week on a high note despite ongoing concerns about terrorism. Investors kept their cool and gave the S&P 500 its best week of the year.[i] For the week, the S&P 500 gained 3.27%, the Dow rose 3.35%, and the NASDAQ grew 3.59%.[ii]
Terrorism reared its ugly head again with an attack in Mali last week that left 20 dead.[iii] Brussels, the seat of EU governance, went into lockdown on Saturday after authorities found evidence of a planned Paris-style attack on the city.[iv] So far, investors seem to be shrugging off the concerns about terrorism. While cool-headed behavior is good news for investors tired of volatility, it’s a grim sign of the times: People are getting used to tragedies.
In other news, anticipation around the next Federal Reserve Open Market Committee meeting in December is heating up and Fed spokespeople are out in force. St. Louis Fed President James Bullard stated that a rate hike is coming “soon.” [v] Dennis Lockhart, President of the Atlanta Fed, cited improving labor markets as evidence supporting a rate raise.[vi]
On top of the speechmaking, FOMC minutes released on Wednesday showed that the Fed is fully prepared to raise rates in December.[vii] The takeaway: Rate hikes may be imminent. However, we also know that the Fed is very responsive to data. Before making a decision in December, Fed officials will be taking hard looks at the November jobs report as well as taking a look at the global economic situation.
During this holiday-shortened week, investors will be paying close attention to a revised third-quarter economic growth report. The first report showed that the economy grew at a tepid 1.5% in the third quarter. Unofficial estimates are projecting a slight rise in the revised estimate to 1.6% for Q3 and a spike to 2.7% in the fourth quarter.[viii] Will these projections hold? Let’s hope so. Analysts will also be closely watching early reports from retailers for clues about what the crucial holiday shopping season has in store.
Monday: PMI Manufacturing Index Flash, Existing Home Sales
Tuesday: GDP, International Trade in Goods, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: Durable Goods Orders, Jobless Claims, Personal Income and Outlays New Home Sales, Consumer Sentiment, EIA Petroleum Status Report
Thursday: U.S. Markets Closed for Thanksgiving Day Holiday
Weekly jobless claims hold steady. New claims for unemployment benefits remained at 276,000, the 36th straight week below the key 300,000 level. The sustained strength in the labor market could encourage the Fed to raise rates at next month’s meeting.[ix]
Housing starts drop to seven-month low. Groundbreaking on new homes dropped in October to multi-month lows. However, a sharp rise in building permits suggests that the housing market still has momentum.[x]
Wages may be growing faster than we think. A measure of wage growth published by the Atlanta Fed shows that wages grew 3.0% in September, a number much higher than the 2.2% shown by official Labor Department statistics.[xi]
Q3 earnings fall 1.5% from one year ago. With most earning reports in from the third quarter, analysts project that earnings fell last quarter (year-over-year) for the first time since 2009. However, excluding the ailing Energy sector, earnings per share would be up 3.9%.[xii]