Market Perspective for December 26, 2015

A recovery in oil and commodity-related shares helped to propel the stock market higher during the holiday-shortened trading week. The Santa Claus rally also lifted the S&P 500 Index into positive territory for the year.

Chevron (CVX), Exxon Mobile (XOM) and other energy firms saw impressive gains this week, rallying on a surprise reduction in U.S. crude inventories. The IMF, OPEC and Russia all came into the week with negative sentiment, predicting depressed oil prices would last into 2016 and beyond. The most active futures option was a put on December 2016 crude at $30. Investors also began adapting to the change in U.S. law which now allows exports of crude oil.

Better-than-expected economic news supported the bounce in stocks. Although third quarter gross domestic product growth was revised down to 2.0 percent, the reading exceeded many economists’ expectations. The University of Michigan Index of Consumer Sentiment also beat estimates with a confidence rating of 92.6. Personal incomes increased 0.3 percent in the United States, making November the eighth consecutive positive month. Consumer spending rose by the same 0.3 percent, while core inflation, as measured by the core PCE, came in under the Fed’s ideal 2-3 percent range at 1.3 percent. New home sales also rose in November, though the sale of existing home sales declined.

Central banks also supported financial markets during the week. The People’s Bank of China added liquidity and alluded to adding stimulus to combat deflationary pressure. Peter Praet, an executive board member of the European Central Bank, said the organization would continue its accommodative monetary policy as long as necessary.

Nike (NKE) shares reversed all-time highs in after-hours trading on Tuesday when the company announced a rare miss in quarterly sales. The stock was off 2 percent on Wednesday and nearly another 2 percent at the open on Thursday. Shares also split 2 for 1 on Thursday. Bed Bath and Beyond (BBBY) was down more than 2 percent on news that it was lowering its third quarter guidance. Shares of the retailer have been sliding all year long and the firm’s stock buyback policy has proven to be a waste of shareholders’ money. Disney stock was also lower on the week, despite record box office receipts for Star Wars and an overall uptrend in the stock market. ConAgra (CAG) is up 5 percent this week after earnings per share exceeded estimates. The company benefited from the sale of its private label business and cost cutting.

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