ETF & Mutual Fund Watchlist for November 30, 2016

SPDR Energy (XLE)

OPEC’s production cut of 1.2 million barrels per day lifted oil prices 9 percent to their highest November level. Iran can increase production thanks to a higher quota, while Libya, Nigeria and Angola are exempt from the deal. American shale producers are not party to any OPEC deal. Assuming prices rise, American output will rise, blunting the impact of the cuts.

Natural gas, on the other hand, is on the cusp of a bullish breakout. The move could be related to weather patterns, a result of the change from El Nino to La Nina. In brief, El Nino raises temperatures in the Pacific above average and La Nina pulls them below average. The El Nino in 1997-1998 was strong and earned the title of “warmest on record” until this year. The subsequent La Nina was equally strong and reversed all of the warming as global average temperatures collapsed for 2 years before bottoming. As cold winters hit North America, natural gas supplies declined and eventually led to a spike in prices.

The El Nino in 2015-2016 exceeded the 1998 peak, with 2016 likely to be named the warmest on record. Global average temperatures over land have already plunged by 1 degree Celsius since summer, which is consistent with a powerful La Nina. If the newly arrived La Nina goes on to meet or exceed the late 1990s La Nina, natural gas demand will rise as winter temperatures drop over the next one to two years.









WisdomTree US Dollar Bullish (USDU)
PowerShares DB US Dollar Bullish (UUP)

Higher oil prices often accompany a weaker U.S. dollar as inflation is behind the move in both cases. Supply cuts drove the oil rally this week and the U.S. dollar remains strong due to higher interest rates on U.S. Treasuries, which is attracting foreign investment.



Indexes

Small-cap and mid-cap stocks extended leads last week as more details of Republican tax plans emerged. Many proposed changes will strip away laws that benefit large corporations.

While small- and mid-cap shares trounced large-caps in recent weeks, the Dow Jones Industrial Average also performed well with exposure to industrials and financials, outperforming both the S&P 500 Index and the Nasdaq. The Dow is overweight industrial and financial stocks relative to the S&P 500 and have been the best-performing sectors since the November 8 election.






Market Perspective for November 28, 2016

Equity markets have advanced for three consecutive weeks, leading major indexes to new all-time highs with broad support from several sectors. The Russell 2000 turned in a 15-day winning streak last week and early holiday sales data has been encouraging.  A slight pullback in early Monday trading following further skepticism regarding OPEC’s latest production deal did little to sway bullish sentiment as investors look ahead to a December interest rate hike and President-elect Trump’s proposed policies to stimulate the economy in 2017.

The jobs report is the last one before the Federal Open Market Committee (FOMC) meets mid-December to set interest rates. Analysts are forecasting an increase of 175,000 new jobs on Friday’s monthly nonfarm payroll report. A reading much stronger or weaker could influence if and how much the Fed adjusts rates at the meeting. Odds are now above 90 percent that the Fed will increase rates by 25 basis points at its mid-December meeting. European Central Bank (ECB) President Mario Draghi is scheduled to deliver a speech to the EU parliament Monday. His remarks will be watched closely for insights into the European economy and any future actions on the part of the ECB. There is also an important meeting of OPEC and non-OPEC countries early in the week, though many cautious investors moved out of the sector ahead of that meeting.  U.S. weekly crude inventory is forecast to report a 2-million-barrel build on Wednesday, which could further complicate oil prices should OPEC again fail to agree on production cuts.

Consumer price index (CPI) and manufacturing purchasing manager index (PMI) reports from around the world will be available this week. The latest U.S. consumer confidence reading, which is expected to rise significantly, and the revised third quarter gross domestic product (GDP) figures will be released Tuesday. The forecast is for a slight upward revision in GDP. Eurozone CPI is expected to rise slightly but remain well below the ECB’s 2-percent target. Economists expect the Chicago PMI will rise from last month’s 50.6 to 51.8. Chinese and UK PMI numbers are due out on Thursday. While the Chinese report is expected to remain unchanged, the forecast is for a slight decline in Britain. The Domestic PMI number is forecast to rise slightly.

Pending U.S. home sales and the weekly mortgage purchase applications index will be released on Wednesday.  U.S. dollar strength has led to a sell-off in Treasuries and an uptick in mortgage interest rates. The Personal Income and Outlays report is expected to show a slight increase in wages and spending. The Federal Reserve Beige Book is also due out Wednesday. Analysts anticipate a drop when the latest light vehicle sales figures are released Thursday.

Corporate news will be relatively quiet as earnings season winds down. At opposite ends of the spectrum, Tiffany’s (TIF) and Dollar General (DG) are scheduled to report this week. Supermarket chain Kroger’s (KR) is scheduled to release latest earnings and revenue numbers on Thursday, which may have been reduced due to falling food prices.

Market Perspective for November 25, 2016

Major averages continued to set new all-time highs throughout the abbreviated holiday week. The Dow cleared 19,000, the S&P 500 index rose more than 1 percent to break above 2,200 and the Nasdaq was up slightly less than 1 percent to almost 5,400. The financial, telecommunication and technology sectors led the rally. On Wednesday, the U.S. dollar index rose sharply, and the price of gold dropped approximately $30 per ounce to a nine-month low of $1,180.90.  West Texas Intermediate Crude rose to nearly $50 per barrel on news that OPEC may be close to a production agreement, but settled below $48 after weekly inventory data reflected a large build in gasoline stockpiles. OPEC oil ministers are expected to meet Wednesday in Vienna. Shares of the Energy Select Sector SPDR ETF (XLE) rose almost 2.5 percent this week.

European Central Bank (ECB) President Mario Draghi spoke Monday before the European parliament. He reiterated that the Eurozone is recovering at a moderate pace and the unemployment rate is declining. Notes from the most recent FOMC meeting confirm confidence that the strengthening economy will justify a December rate hike.

U.S. existing home sales rose to their highest level in more than nine years, despite rising prices and higher mortgage rates. The forecast was for a slight decrease. Sales of new homes unexpectedly fell 1.9 percent last month. The weekly mortgage application index rose over 4 percent. Durable goods orders increased 4.8 percent to handily beat consensus estimates of 1.5 percent. As expected, weekly unemployment claims rose slightly, though initial jobless claims have been below 300,000 for the past 90 weeks. The University of Michigan Consumer sentiment index rose to 93.8, more than 8 points above its pre-election figure.

Tyson Food (TSN) shares fell approximately 15 percent lower-than-expected fourth quarter earnings and revenues and news that CEO Donnie Smith will step down at the end of the year. Hewlett Packard Enterprises (HPE) shares were down by more than 4 percent before recovering following disappointing earnings and revenues and a security breach that compromised the personal information of more than 134,000 current and former U.S. Naval personnel.

Dollar Tree (DLTR) shares rose more than 12 percent on Tuesday after beating earnings and revenue expectations. Existing same-store sales increased a better-than-expected 1.7 percent due to higher foot traffic and an uptick in average spending per customer. John Deere and Company (DE) hit an all-time high of $104 per share on Wednesday with earnings and revenues that beat expectations and improved sales guidance as crop prices recover.

ETF Investor Guide for November 2016

The ETF Investor Guide is NOW AVAILABLE! Links to the ETF Data Files have been posted below. Market Perspective:  Bank & Biotech Stocks Rally  The S&P 500 Index gained 1.90 […]