Market Perspective for December 27, 2016

The 2016 Santa Claus Rally sent U.S. equities higher amid low volume trading and markets should remain quiet through the week as various countries close for the New Year. U.S. markets will be open from Tuesday through Friday.

The Dow Jones Industrial Average has traded within 1 percent of 20,000, a key psychological level, since December 12. Once the Dow breaks out, short-term bears will likely close out trades and many investors will return from the sidelines with renewed confidence.

The S&P 500 Index has risen 5.7 percent and the Dow has climbed nearly 9 percent. Individual sectors have recorded even higher returns; banks have risen 25 percent.  The U.S. dollar continues to rise as well, fueled by investors’ belief in Trump’s proposed economic policies. Consumer sentiment is at its highest level since 2004 and the economy is growing at its fastest pace in two years.

Economic news will be very light this week. The S&P/Case-Shiller House Price Index hit a new all-time high in October. The Pending Home Sales Index for November will be available on Wednesday. Analysts expect a 0.5-percent increase.

Weekly initial unemployment claims will be out on Thursday and oil inventory data will be released on Friday (a day late due to the holiday). Unemployment claims are expected to drop to 270,000 from last week’s 275,000. Analysts expect U.S. crude inventories to drop by approximately 0.5 million barrels following last week’s larger-than-expected build. After quickly rising to more than $50 per barrel, crude prices have stabilized in the low $50s as inventories increase and new production comes online. On Friday, analysts predict the December Chicago Purchasing Managers’ Index (PMI) will fall from 57.6 to 52.3 No major companies are set to report earnings this week.

With the final trading week of the year, investors are running out of time to settle 2016 business. Contributions to individual retirement accounts can be made until April 15, but 401k contributions for this year must be made in 2016. Capital losses must be sold this week to claim on 2016 tax returns. Retired investors must also take required minimum distributions from retirement accounts by the end of this week to avoid tax penalties. If you have yet to manage these transactions and require assistance from your broker or fund company, it would be prudent to take care of it early. Call volumes will be heavy all week and will increase as the Friday deadline approaches.

If you have any questions pertaining to your contributions or investments you are considering selling, please call us at (888) 252-5372.

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