For the week ending November 28, 2014, the major indices continued the rally on thin volume, again closing at new highs, with the Dow closing near 17,828 and the S&P 500 near 2,068. The big story for the week is that OPEC decided not to cut oil production, which caused both oil and gold to plummet. Below is a recap of the markets for each day of the week.
The markets were up fractionally on Monday on soft economic news (PMI services flash slowed in November; national activity index slowed in October). The Dow rose fractionally to 17,817; the S&P 500 rose 0.29 percent to 2,069.
On Tuesday the markets were down fractionally on mixed economic news (upward revision to 3rd quarter GDP; Case-Shiller and FGFA home price data both trending lower; consumer confidence well below expectations while the job market assessment was positive). The Dow dropped fractionally to 17,814; the S&P 500 dropped -0.12 percent to 2,067.
On Wednesday, the markets were fractionally higher despite soft economic news (durable goods orders were soft; both new and pending home sales were flat; initial jobless claims spiked). The Dow rose fractionally to a new record close of 17,827; the S&P 500 rose 0.28 percent to 2,073.
The markets were close on Thursday for Thanksgiving.
On Friday (which closed early due to Thanksgiving), the markets were mixed as oil plunged $6 to a 5-year low of $67.50 (WTI). The Dow rose fractionally to another record close of 17,828; the S&P 500 dropped -0.25 percent to 2,068.
The economic news this past week that was mixed, with GDP making an unexpected jump to 3.9 percent while both housing and manufacturing were showing weakness.
On the economic front, the focus was on Friday’s surprise news that OPEC kept production levels unchanged. On that news, oil (and other commodities) plummeted. It is now viewed that the cartel is engaging in a price war in an attempt to make new drilling projects in the U.S. unprofitable as prices continue to drop. This also puts pressure on OPEC members (OPEC produces 40 percent of the world’s oil) that need high oil prices to balance their budgets (Iran, Ecuador, Nigeria, Algeria, Iraq, Libya, Venezuela).
Globally, the focus is still on the flagging economies and their impact on the U.S. economy. The EU, Japan, and India (a big emerging market) all show their economies are stagnant or declining. In Europe, as consumer prices rose the slowest in 5-years, there is concern about deflation; in Japan, its core consumer price index rose at is slowest pace this year; and in India, its third quarter GDP showed deceleration.
The Dow and S&P 500 hit record closing levels this week. The Dow climbed 18.18 points (0.10%) to close at 17,828.24; the S&P 500 climbed 4.06 points (0.20%) to close at 2067.56; the Nasdaq composite index rose 78.66 points (1.67%). The rise was attributed to improving U.S. economic data and upbeat corporate earnings.
The geopolitical news this week was the progress made on reaching a nuclear deal with Iran. The meeting in Vienna made progress, and the next deadline for a framework agreement is March 1, 2015 and July 1 for the final agreement. The current declining prices in oil is putting pressure on Iran to reach an agreement.
The bottom line: the economy continues to grow at a moderate but slowing pace. Manufacturing and housing are showing increasing weakness while the consumer shows improvement (but slowing) Rates are not expected to increase while the Fed remains concerned about low inflation.
Globally, the concern remains the slow growth and possible recessions in the eurozone. Much will hinge on the implementation and effectiveness of the quantitative easing policies of the ECB.
The focus next week in the U.S. will be on the ISM manufacturing index and the employment situation reports. Globally, focus will be on China’s PMI, EU’s PMI, and the ECB announcement.
Year-to-date the markets are up: Dow 7.55%; S&P500 11.86%; Nasdaq 14.73%.
The Markets for the past week were: DJIA up 0.1%; S&P500 up 0.2%; Nasdaq COMP up 1.67%.
Commodities (ETFs) for the past week were: Gold (GLD) down -2.84%; Silver (SLV) down -6.08%; Oil (OIH) down -14.79%; Dollar (UUP) up 0.04%; 30-yr Bonds (TYX) dropped 11 basis points to 2.91%.
The VIX this past week (a measure of market sentiment and volatility) rose to 13.33% due to the big drop in oil prices.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is moderate: on Monday – PMI Manufacturing Index, ISM Mfg Index; on Tuesday – Motor Vehicle Sales, Construction Spending; on Wednesday – ADP Employment Report, Productivity and Costs, Weekly EIA Petroleum Status Report; on Thursday – Weekly Jobless Claims; and Friday – Employment Situation, International Trade, Factory Orders.
If you’re trading options, we suggest Put Credit spreads for next week at 1.75 standard deviations or greater. Expect the price of the SPX to fall within 1986 and 2150 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.