For the week ending December 11, 2015, the markets took a beating declining the most since August as crude oil prices fell sharply. For this past week, the Dow was down -3.3 percent and the S&P 500 was down -3.8 percent. In other news: the House approves a temporary funding bill; all eyes are on the Fed; and, China’s economy appears to be steadying. Below is a recap of the markets for each day of the week.
The markets declined on Monday as oil prices collapse. Oil fell -6.0 percent to $37.75. The Dow dropped -0.7 percent to 17,731; the S&P 500 dropped -0.7 percent to 2,077.
On Tuesday, the markets continued their decline as energy shares helped pull stocks lower. Oil remains soft at just under $38. The Dow dropped -0.9 percent to 17,568; the S&P 500 dropped -0.65 percent to 2,064.
The markets continued their fall on Wednesday in front of Friday’s retail sales and the Fed meeting next week. Oil declined -0.9 percent to $37.19. The Dow fell -0.4 percent to 17,492; the S&P 500 fell -0.77 percent at 2,048.
The markets on Thursday bounced back as jobless claims posted its highest reading in months. Oil dropped $0.69 to $36.50. The Dow rose 0.5 percent to 17,574; the S&P 500 rose 0.23 percent to 2,052.
On Friday, the markets dropped sharply on troubles in China’s markets and the anticipate Fed rate hike next week. Oil dropped 3 percent to under $36. The Dow dropped -1.8 percent to 17,265; the S&P 500 dropped -1.94 percent to 2,012.
The markets dropped sharply this week as crude oil prices collapsed. The Dow ended the week down -3.27 percent (584 points); the S&P 500 ended down -3.79 percent (79 points). U.S. stocks closed a volatile week with a sharp drop on Friday as crude oil prices hit their lowest point in over seven years at $35.62 per barrel for WTI. Also contributing to the decline in the markets is news of an $800 million junk bond fund preventing withdrawals as it tries to liquidate. The VIX closed above 24, gaining more than 60 percent for the week.
The House approves a temporary government funding bill on Friday. The funding will last through Wednesday which should give the House negotiators time to work on a $1.15 trillion bill to pay for programs through September. The delay is due to controversial policy provisions that the Republicans want to attach to the spending bill. These include the lift in a ban on crude oil exports, the permanent renewal of certain expired tax breaks, and tightened screening of Syrian refugees.
U.S. bond prices fall ahead of the Fed meeting this coming week that could raise short-term rates. Investors are expecting a ‘dovish tightening’ this coming Wednesday, followed by a slow pace of further hikes in 2016. The focus this coming week will be on the Fed which is expected to increase the rate 25 basis points; this will be the first hike in rates in nearly a decade. Bond prices have dropped, raising yields on all the U.S. Treasuries.
China’s economy is showing signs of steadying, although risks remain elevated. Economic data from China was stronger than expected for November, with factory output growth at a five-month high and retail sales growth at an annual 11.2 percent (the strongest expansion this year). This indicates that the flurry of stimulus measures by the government may have created a floor for the Chinese economy. Analysts, however, believe that more policy steps will be needed to maintain the floor in light of the cooling property market, high domestic debt levels, and weak global demand. Real interest rates are still too high due to falling producer prices, and the PBOC will need to cut interest rates to combat deflation.
The bottom line: it is nearly certain the Fed will raise interest rates on Wednesday. But weakening economic data indicates that there will not be a rate hike in January. Globally, the central banks of England and Switzerland have both opted to leave rates unchanged while the central bank of New Zealand lowered its cash rate -2 percent. Economic data were mixed as commodity prices continue to tumble.
The focus next week in the U.S. will be on the FOMC which is expected to announce a rate hike on Wednesday of 25 basis points. Globally, the focus next week will be the FOMC, Bank of Japan. In addition, the focus will be on the following: UK (CPI, PPI, Labor Market Report, Retail Sales); Eurozone (Industrial Production, Merchandise Trade Balance, Harmonized Index of Consumer Prices); Germany (ZEW Survey, Ifo Survey); China (nothing); and Japan (Tankan Survey, Merchandise Trade Balance).
Year-to-date the markets are mixed: Dow -3.1%; S&P500 -2.3%; Nasdaq +4.2%.
The Markets for the past week were: DJIA down -3.3%; S&P500 down -3.8%; Nasdaq COMP down -4.1%.
Commodities (ETFs) for the past week were: Gold (GLD) down -0.87%; Silver (SLV) down -4.11%; Oil (OIH) down -6.70%; Dollar (UUP) down -0.90%; 30-year Bonds (TYX) dropped 13 basis points to 2.88%.
The VIX this past week (a measure of market sentiment and volatility) rose to 24.39%. This reflects the collapse in crude oil prices.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is light:
o Monday – nothing
o Tuesday – Consumer Price Index, Empire State Mfg Survey, Treasury International Capital
o Wednesday – EIA Petroleum Status Report, Housing Starts, Industrial Production, PMI Manufacturing Index Flash, FOMC Meeting Announcement/Forecasts/Press Conference
o Thursday – Jobless Claims, Philadelphia Fed Business Outlook Survey
o Friday – Quadruple Witching
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.5 standard deviations or greater (or simply do not trade this week). Expect the price of the SPX to fall within 1877 and 2155 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.