The Last Shuffle


The last column of 2015 is a short one, as MarketWeek does its usual holiday issue this week and the next. After an equity sell-off the previous week that was inspired by Europeans closing out their books on the year and then gained strength from the vagaries of options expirations, equity prices came rushing back.

I’ll be looking for trading attempts this week to push the S&P 500 back towards the 2100 level, or at least positive on the year, but don’t expect a straight-line move. The index hasn’t been able to string together more than four consecutive up days since February, and even four-day moves have been tough to come by. The last trading day of the year (this Thursday) hasn’t usually been a positive one for equities in recent years, either, so ending up a little south of 2100 now seems more likely than surpassing it, even in a thinly-traded week. Perhaps the need for an up-year will help reverse the last-day curse, but I wouldn’t bet too much on it (or against it, for that matter).

Some good news from somewhere would certainly help matters. A little improvement in Chinese news or oil prices wouldn’t hurt (perhaps the weather will co-operate), and our own calendar holds out some possible help if pending home sales (Wednesday) or the Chicago purchasing manager’s index (Thursday) can surprise to the upside.

The most important factor remains the unenthusiastic backdrop. Profit growth was negative for the S&P 500 the last two quarters, with the biggest decline coming in energy (hence equity hopes for a little resilience in energy prices). Growth is currently forecast to be negative for the fourth quarter too, though the end result looks to be another decline of only a percent of two, much like the last two. Not good enough to inspire a charge, not weak enough to set off a retreat. Expect prices to reflect the same indecision.

I hope that all were able to enjoy the Christmas Day holiday. As I like to tell my non-Christian acquaintances, forget the commercial hype and (if necessary) the religious figurines, and remember that it’s our only holiday of the year whose central message is peace and love: “Peace on Earth, Goodwill towards men.” Happy New Year!

The Economic Beat (in holiday time)

The week began with a revision to third-quarter GDP, now officially reported as a 2.0% annualized, seasonally adjusted rate. The total dollar revision was quite small and 4-quarter GDP is now at 3.07%. After-tax profit growth, as measured by the Bureau of Economic Analysis, fell to 1.3% year-on-year, implying a zero-to-negative figure after consumption and valuation adjustments.

Home sales were softer than expected, with new-home sales falling suddenly and steeply by over 10% to drag the year-on-year rate into negative territory (-3.8%), and new-home sales getting a big downward revision for October. The latter category reported a “rise” in November sales – thanks to the revision – to a seasonally adjusted annualized rate of 490,000, very close to the trailing-twelve-month actual rate of 493K. Prices appear unchanged at +6.1% year-on-year for most existing homes; the sales drop is being largely attributed to new closing rules.

Manufacturing showed little, with the Richmond Fed survey showing a surprise rebound to +6 (zero is neutral), but durable goods orders were unchanged in November. Business cap-ex spending had its 11th consecutive month of negative year-over-year comparisons.

Personal income growth was good in November (+0.3%) and should remain so until employment flattens and turns down. Spending growth was identical at 0.3%, though October was revised downward to no change. Weekly spending reports have been soft in December, but some late improvement is expected.

The highlight of next week is the Friday holiday for New Year’s Day, with some attention also due for the Chicago PMI on Thursday and pending home sales on Wednesday. International trade is due on Tuesday along with the Case-Shiller home prices resale index. Bond markets close early on Thursday, but equities will have their usual close at 4:00 PM New York time.

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