Market at a Glance - 12/17/2015

By: Christopher Mistal

December 17, 2015

Psychological: Nervous. Only two weeks remain in 2015. Where is the holiday cheer and the corresponding yearend rally? Other than NASDAQ; DJIA, S&P 500 and Russell 2000 are all down year-to-date, in a pre-election year! This year could be DJIA’s first pre-election year decline since 1939. Not to mention soaring junk bond yields and the persistent energy rout. Yes, all good points and valid concerns. Let’s not overlook the fact that the market has not collapsed upon itself yet. There appears to be some underlying strength supporting the markets. Perhaps all the negatives are “transitory” as Fed Chairwoman, Yellen is fond of saying. In two weeks we will all be given a fresh start.

Fundamental: Mixed. Outside of the labor market, data remains dicey. Overall corporate revenues and earnings have been weighted on by falling energy and commodity prices and a stronger dollar. The very same declines in energy and commodities along with a strong dollar are also dragging inflation metrics lower. Tepid global growth, geopolitical tensions and the threat of terrorism are also eroding confidence. Some commodity price stability could go a long ways towards improving the fundamental landscape.

Technical: Range bound. Alas, some Fed uncertainty has been removed from the market. Unfortunately, broad energy and materials sector instability remains and a clear upside catalyst is still not in sight. DJIA, S&P 500 and NASDAQ appear to be stuck in a range from around their respective November lows and a few percentage points below their all-time highs. As long as all three indices do not slip below their November lows, the near-term outlook remains positive. If all three indices fall solidly below the November lows, the outlook would darken substantially.

Monetary: 0.25-0.50%. It finally happened. ZIRP has passed into the history books, for now anyways. For months the Fed had slowly painted itself into a corner and that corner was yesterday. After seven years at zero, the Fed funds rate is now 0.25 to 0.50%. The primary reason for the increase appears to be a Fed now focused on the potentially damaging effects of acting too slowly. Their biggest fear, so far looking quite unlikely, was that inflation could rapidly increase and force a faster tightening cycle than desired. Bottom line; even though some interest rates are higher today than yesterday, monetary policy is still highly accommodative to the economy and the financial markets.

Seasonal: Bullish. January is the third month of the Best Six/Eight, but it is the last of the Best Consecutive Three month span. January is the top month for NASDAQ (since 1971) averaging 2.7%, but it has slipped to sixth for DJIA and fifth for S&P 500 since 1950. The Santa Claus Rally ends on January 5 and the First Five Days early-warning system ends on the 8th. Both indicators provide an early indication of what to expect in 2016. However, we will wait until the official results of the January Barometer on January 29 before tweaking our 2016 Annual Forecast. Alerts will be issued after the close on these dates.