Stocks closed out the short week mixed on very low volume as investors stayed home for the holidays. For the week, the S&P 500 grew 0.04%, the Dow lost 0.14%, and the NASDAQ gained 0.44%.[i]
The data we got last week suggests that the economy is still chugging along. Investors got their second look at third-quarter Gross Domestic Product and were cheered to learn that the economy grew 2.1% last quarter instead of the 1.5% originally estimated. The revised data shows that businesses spent more than expected.[ii]
The holiday shopping season kicked off with Black Friday, and the news so far suggests that retailers may have seen less business than last year. However, a sluggish start to the retail season isn’t all bad news. National shopping trends suggest that the Black Friday weekend is becoming less important to retailers, especially as more consumers move to online shopping; industry projections indicate that retailers may see a 2.4% increase in holiday sales this year.[iii]
However, despite the improving labor market and economy, Americans may be less eager to open their wallets this year. Overall consumer spending data suggests that Americans are curbing their spending and padding their savings accounts. While we certainly won’t argue that prudent financial behavior is a bad thing, flat consumer spending may be a headwind for economic growth.[iv]
The week ahead is packed with important economic events, including the November jobs report, which is the last major employment data the Federal Reserve will review before they meet in mid-December to make a decision about interest rates. If the jobs report shows evidence of continued momentum in the labor market, it could sway the Fed toward raising interest rates for the first time in nine years.[v] Fed chairwoman Janet Yellen will also give several speeches, though it’s unlikely that she’ll give us too many hints ahead of the December meeting.
Monday: Chicago PMI, Pending Home Sales Index, Dallas Fed Mfg. Survey
Tuesday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Wednesday: ADP Employment Report, Productivity and Costs, EIA Petroleum Status Report, Janet Yellen Speaks 12:25 PM ET, Beige Book
Thursday: Jobless Claims, Janet Yellen Speaks 10:00 AM ET, Factory Orders, ISM Non-Mfg. Index
Friday: Employment Situation, International Trade
Durable goods jump in October. Orders for long-lasting manufactured goods like autos, airplanes, and appliances, soared 3.0% in October. The increase suggests that demand may be increasing in the last months of the year.[vi]
Consumer confidence declines in November. A measure of American sentiment about the economy unexpectedly fell in November as Americans became concerned about their job prospects.[vii]
New home sales soar. Sales of newly constructed homes skyrocketed by 10.7% in October, and inventories rose to the highest level in 2010. The increased activity could blunt concerns about a slowing housing market.[viii]
Mortgage applications fall as rates increase. A rise in mortgage rates over the last month caused application volume to drop 3.2% last week. However, applications are still up 4.0% over the same period last year.[ix]
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]
Stocks surged in an action-packed week, giving the NASDAQ two record closes in a row. For the week, the S&P 500 gained 2.41%, the Dow rose 1.84%, and the NASDAQ soared 4.25%.1
Investors around the world breathed a sigh of relief when EU negotiators finally reached a deal on Greece after weeks of brinksmanship. However, all is not won yet since the deal must pass several Eurozone parliaments next and Greece must apply for a new International Monetary Fund program.2 But, the European Central Bank approved more emergency relief and Greek banks are due to reopen this week.3 Will this new bailout resolve all of Greece’s issues? Certainly not. In fact, we may see new acts in the Greek drama if a snap general election is called this fall or if the IMF refuses to support the deal.4 However, Europe avoided a painful Greek exit and Greece has stepped back from the brink (for now).
On the U.S. side, earnings season really got going last week; despite some outsized performance from a few companies, earnings have gotten off to a lukewarm start, with early results suggesting that revenues may be weaker than what we saw in the first quarter. However, financials are showing strength and some standouts in the tech sector drove the NASDAQ to new record closes.5 Shares from technology giant Google (GOOGL) skyrocketed on strong earnings, giving the stock the biggest one-day rally in history.6
In other news, Federal Reserve Chair Janet Yellen testified before House and Senate committees last week, reiterating the Fed’s commitment to raising rates later this year. Though Yellen is comfortable with the improvement shown by the labor market, she wants to be cautious about the timing of interest rate hikes to avoid stalling the economic recovery.7
Looking ahead, earnings season will continue heating up this week, giving analysts piles of new reports to digest. Investors will also take a look at more housing data to gauge how the sector looks this quarter. Though summer is often a sleepy time for markets, recent events are keeping traders close to home and we may see more volatility in the coming weeks.
Wednesday: Existing Home Sales, EIA Petroleum Status Report
Thursday: Jobless Claims
Friday: PMI Manufacturing Index Flash, New Home Sales
Jobless claims fall more than expected. After three weeks of increases, the number of Americans filing new claims for unemployment benefits fell. Summer jobs data tends to be volatile, but the drop is a sign of health for the labor market.8
Inflation rises in June. The cost of consumer goods rose for a fifth straight month in June, driven upward by rising gasoline and other costs. This increase supports the Federal Reserve’s plan to raise interest rates this year.9
Housing starts rebound in June. Groundbreaking on new homes increased by 9.8% last month and new permits rose, boosting expectations of a housing market resurgence this year.10
Retail sales decline. U.S. retail sales unexpectedly slipped last month as Americans cut back on major purchases like autos and home goods. Though the decline could be seasonal, it raises worries that the economy might be lagging.11