Market at a Glance - 11/30/2017

By: Christopher Mistal

November 30, 2017

Psychological: Frothy. The holiday season is officially underway. Sentiment readings have been quite bullish and are likely to remain so as the market continues to rally. Expectations for tax reform and the possibilities of less regulation are also giving investors and traders reason to be cheerful.

Fundamental: Accelerating. Revised Q3 U.S. GDP climbed from 3.2% to 3.3% which is the best reading in three years. Employment also remains on reasonably firm trajectory with the unemployment rate dropping to 4.1%. Inflation metrics are also heading in the correct direction although they could accelerate if wage growth picks up. Corporate earnings have largely been satisfying which is driving expectations higher. If earnings remain robust, then concerns over valuations could ease.

Technical: Breaking out. Stochastic, relative strength and MACD indicators applied to S&P 500, NASDAQ and Russell 2000 have fully rebounded after rolling over in November. Russell 2000 weakness began in early October. Advance/decline lines are all headed higher along with the major indexes. Across-the-board strength suggests the rally has regained momentum that could easily propel stocks higher through yearend and beyond.

Monetary: 1.00-1.25%. A new Fed Chair, Jerome H. Powell has been selected. He has some experience as he has been a member of the Fed’s board of governors since 2012, but perhaps not as much as others. He is generally expected to maintain the dovish pace of interest rate increases while also being to open less financial regulation. What more could the industry ask for? Speaking of rates, CME Group’s FedWatch Tool is currently indicating a 90.2% probability of a 0.25% rate hike at the next Fed meeting scheduled for December 12 and 13. A new range of 1.25% to 1.50% for Fed funds is still quite accommodative.

Seasonal: Bullish. December is the number one S&P 500 (+1.6%) month and second best for DJIA (+1.7%) since 1950. 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. The “January Effect” of small-cap outperformance starts 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 18. Santa’s Rally begins on Friday December 22 and lasts until the second trading day of the New Year. S&P has averaged gains of 1.4% 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.