A Time for Thanks

“I can no other answer make but thanks, and thanks, and ever thanks.” – William Shakespeare, Twelfth Night

Regular readers know that the holiday editions of MarketWeek are (mercifully?) short, thus this will be quite concise. If you’d like a longer exposition of my case for the current market rebound, it can be found at “The Case for the Rebound is Still Intact” on the Seeking Alpha website. Only one and a half light trading sessions have passed since it was posted.

The markets did rise last week, though volume got lighter every day. The S&P 500 rose a remarkable 3.7%, capped by an even more remarkable 1.3% rise during Friday’s shortened session, easily the lightest trading day of the year. A bit of backing and filling would be normal in the early part of next week, though potentially good news from Europe about another debt band-aid for Greece lurks in the wings (as well as potentially bad news about a breakdown). You should also expect that absent undeniably bad news about Greece, our own budget negotiations or Black Friday sales, markets will push higher in the back half of the week as the end of the month approaches.

Last week’s rise came on a mixture of currents. Stock prices had become horribly oversold by Friday morning, and some sort of rebound was almost inevitable. Very notably, last Friday was also an options expiration day. Monday’s big rebound certainly had every appearance of the typical reversal binge (in this, short-covering) when a big price move collides with expiration. There was also a scattering of good news on the economic front, with positive comments about budget negotiations, good news from the housing sector, and some mild improvement in overseas economic data.

If we do see another good-sized move up next week, I would look for some profit-taking in early December, accompanied by the usual talk of doom. May you all enjoy your long holiday weekend!

The Economic Beat

So far as economic releases went, it was a positive week. The housing sector was key, with three reports – existing home sales, housing starts, and homebuilder sentiment – all exceeding expectations. Activity is still at historically low levels, but the flip side of lower numbers is that a little improvement makes for big percentage gains. The homebuilder sentiment index was at its best level in 6 1/2 years (46) – though still below neutral (50).

Another highlight was that the PMI “flash” measure, a new datum that tries to anticipate the monthly national survey, rose unexpectedly. That could be promising. The Chinese PMI crept back up over 50, barely different from unchanged but a good psychological boost. In Europe, German exports were better than expected in the latest GDP estimate, while both the French and German business sentiment surveys surprised with incrementally better results than the previous month. The trading boxes bought the news.

Next week will be quite heavy with economic data. The reports to really watch out for are in the back half of the week, with new home sales Wednesday morning, the Fed Beige Book Wednesday afternoon, and a strong upward third-quarter revision to GDP expected Thursday morning. Pending home sales will come shortly after GDP, and the Chicago PMI (purchasing index) is released Friday morning. If jobless claims continue to subside post-Sandy and the Chicago PMI follows the direction of the “flash” PMI, reversing its own recent string of weak reports, the month could finish with quite a flourish.