Market at a Glance - 11/24/2015

By: Christopher Mistal

November 24, 2015

Psychological: Skeptical. On the heels of the rebound, last week’s Investors Intelligence Advisors Sentiment survey showed bulls at 43.3%, bears at 26.8% and correction at 29.9%. This is still essentially a neutral reading. Recent terror attacks, the threat of more and today’s downing of a Russian fighter plane by Turkey are surely dampening typical holiday cheer that usually begins to kick in around this time of the year. Despite all the valid concerns and worries, the market is holding up. As worries and concerns begin to fade, there is room for the market to drift higher until it nears resistance just below previous record highs.

Fundamental: Mixed. Third quarter U.S. GDP was revised higher today, but it was still a substantial slowdown from Q2. Inventories are flush and are likely to be a drag on Q4. Corporate revenues and earnings are also down from year-ago levels for many companies. However, the labor market remains reasonably firm with solid monthly gains in payrolls along with low initial weekly jobless claims. Lower energy prices and improving wages are freeing up cash for consumers, unfortunately many are choosing to save the windfall rather than spend it as the savings rate climbed to 5.2% in Q3.

Technical: Range bound. After an October for the record books, DJIA, S&P 500 and NASDAQ now appear to be settling back into trading ranges quite similar to where they were prior to the August correction. The top of the range is just below previous record highs while the lower end is just below 200-day moving averages. DJIA, S&P 500 and NASDAQ are likely to wonder around inside this range until the Fed meets again in mid-December and possibly longer should geopolitics further sour.

Monetary: 0-0.25%. A December rate hike is still less than certain. The Fed seems reasonably comfortable with the state of the U.S. labor market and economic growth (even though it remains less than spectacular). Tepid inflation and the risk of deflation seem to be the only real concern the Fed has. At this point, the best thing the Fed could do might just be to go ahead and start the tightening cycle and put an end to that part of interest rate uncertainty.

Seasonal: Bullish. December is the number one S&P 500 month and second best for DJIA since 1950, averaging gains of 1.7% on each index. It’s also the top Russell 2000 (1979) month and second best for NASDAQ (1971) and Russell 1000 (1979). Rarely does the market fall precipitously in December. In pre-election years, December’s overall ranking remains about the same across the board however, average gains improve handsomely. DJIA averages 3.0%, S&P 500 3.2%, NASDAQ 4.9%, Russell 1000 3.5% and Russell 2000 4.0%. The “January Effect” of small-cap outperformance starts early in mid-December. Wall Street’s only “Free Lunch” of distressed small- and micro-cap stocks making new 52-week lows on December Triple-Witching Friday will be served before the opening bell on December 21. Santa’s Rally begins on Thursday December 24 and lasts until the second trading day of the New Year. S&P has averaged gains of 1.5% since 1969. In years when Santa Claus did not come to Wall Street, bear markets or sizable corrections have often materialized in the coming year.