For the week ending December 25, 2015, the markets rebounded on the ‘Santa Claus’ rally. For this past week, the Dow was up 2.47 percent and the S&P 500 was up 2.76 percent (ending in positive territory for the year). In other news: oil and commodity prices rebound; new home sales and mortgage applications rise; and, China plans more forceful fiscal policies and reforms. Below is a recap of the markets for each day of the week.
The markets rallied on Monday on low volume in quiet holiday trading. Oil remained under $36. The Dow rose 0.7 percent to 17,251; the S&P 500 rose 0.78 percent to 2,021.
On Tuesday, the markets continued their rally despite weak existing home sales (falling more than percent in November). Oil rose slightly to over $36. The Dow rose 1.0 percent to 17,417; the S&P 500 rose 0.88 percent to 2,039.
The markets surged higher on Wednesday on a huge jump in oil prices. Oil rose $2 to $38. The Dow rose 1.1 percent to 17,602; the S&P 500 rose 1.24 percent to 2,064.
The markets on Thursday pulled back on a shortened holiday session. Oil rose slightly to over $38. The Dow dropped -0.3 percent to 17,552; the S&P 500 dropped -0.16 percent to 2,061.
On Friday, the markets were closed for Christmas.
With strong consumer statistics, the ‘Santa Claus’ rally has kicked off leading the S&P 500 back into positive territory for the year. U.S. stocks surged as oil and commodity prices rebounded. On Wednesday, stocks surged (the largest in the 3-day rally) driving the Dow up 1.06 percent (185.20 points) and the S&P 500 up 1.24 percent (25.32 points).
U.S. stocks rise as commodity prices climb. Energy stocks soared pushing the major indexes to their highest weekly gains in about a month. Oil prices rose 3.8 percent to $37.50 per barrel on Wednesday (the last full day of trading this week) after economic data indicated an unexpected decline in stockpiles. OPEC announced Wednesday that it expects to reduce production over the next few years.
U.S. new-home sales rose 4.3 percent. Purchases of new single-family homes increased to a seasonally adjusted annual rate of 490,000 units in November (470,000 in October), per the Commerce Department. New home sales were up 9.1 percent from the year earlier, rising 14.5 percent over the last eleven months. In comparison, sales of existing homes plunged -10.5 percent from the prior month to a seasonally adjusted annual rate of 4.76 million units (the slowest pace since April 2014), per the National Association of Realtors.
China’s economic planners promise more flexible policies in the next year. China plans to expand its deficit in 2016 to bolster its slowing economy vowing to push “supply side reform”. While making its monetary policy more flexible, China intends to be more forceful and proactive with its fiscal policy. China’s central bank, the PBOC, has cut interest rates six times since November of last year and reduced the banks’ reserve requirement ratios. The government has also stepped up spending on infrastructure projects and eased restrictions on home buying. Other steps are being taken to reduce overcapacity and property inventories. China’s economic growth target is 7 percent; it will need to keep its annual average growth above 6.5 percent over the next five years to meet its goal of doubling GDP and per capita income.
The bottom line: the latest personal spending and durable goods reports indicate that a rebound in December would be necessary to match prior quarter growth. Given the increase in consumer sentiment, this is possible.
The focus next week in the U.S. will be manufacturing (Dallas Fed manufacturing), international trade, housing (Case-Shiller, pending home sales), and the consumer (consumer confidence).
Year-to-date the markets are mixed: Dow -1.2%; S&P500 +0.3%; Nasdaq +6.5%.
The Markets for the past week were: DJIA up 2.8%; S&P500 up 2.9%; Nasdaq COMP up 2.5%.
Commodities (ETFs) for the past week were: Gold (GLD) up 0.99%; Silver (SLV) up 1.94%; Oil (OIH) up 3.88%; Dollar (UUP) down -0.59%; 30-year Bonds (TYX) rose 5 basis points to 2.96%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 15.74%. This reflects the impact of the Santa Claus rally and rising commodity 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 – Dallas Fed Mfg Survey
o Tuesday – International Trade in Goods, S&P Case-Shiller HPI, Consumer Confidence
o Wednesday – EIA Petroleum Status Report, Pending Home Sales Index
o Thursday – Jobless Claims, Chicago PMI
o Friday – markets closed for New Years
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.0 standard deviations or greater. Expect the price of the SPX to fall within 1967 and 2158 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.