Market Perspective for November 23, 2015

After scoring one of its best weeks of the year, the U.S. markets are now looking forward to a holiday-shortened week. The exchanges will be closed on Thanksgiving Day and will close at 1 P.M. on Friday. Global markets, however, will remain open.

As a result of the short week, economic reporting activity will be front-loaded over the next two days. This morning, it was reported that October existing home sales fell by 3.4 percent, though they are up 3.9 percent when compared to last year.  Home construction shares rallied last week along with retailers Home Depot (HD) and Lowe’s (LOW), who are both up over 1 percent through early trading this morning, despite the home sales report.

Revised third quarter GDP data will be reported on Tuesday and durable goods index report will be released on Wednesday. Also out on Wednesday: consumer spending, core inflation, personal income and new home sales for October. The durable goods report, which measures consumer’s willingness to purchase big-ticket items, will be key for the Fed. Economists are forecasting robust growth of 2.1 percent for the month.

The upcoming personal income and spending report contains the PCE deflator used by the Fed to measure inflation. An uptick in inflation will strengthen the case for the Fed to tighten at its meeting on December 15th and16 th. The initial estimate of third quarter economic growth was lower than economists expected at 1.5 percent, but a substantial upward revision to 2.2 percent is expected.

The totality of these economic reports could push the Fed much closer to a rate hike, which the market has increasingly priced in. Traders see confidence from the Fed and New York Fed President Dudley said an increase in rates is as much about signaling confidence as it is about setting policy. Vice Chairman Fischer has also spoken in terms that are interpreted as signaling an increase.

In earnings news, well-known names reporting this week include Tyson Foods (TSN), Hewlett-Packard (HPQ), Dollar Tree (DLTR) and John Deere (DE).

Overseas, European Central Bank President Mario Draghi reiterated on Friday the central bank’s commitment to lifting inflation as soon as possible, which is a sign that action will be taken at the agency’s governing council meeting in early December. The euro slumped in overnight trading, but was back to Friday’s closing levels on Monday. The euro will be the most important factor for the U.S. Dollar Index. The index came within a few tenths of its 2015 high on the euro’s drop overnight.

The S&P 500 finished 3.3 percent higher last week and the Dow Jones Industrial Average climbed 3.6 percent, reversing similarly sized losses a week earlier. Stock investors have much to be thankful for in Thanksgiving week: over the past 20 years, the stock market has rallied an average of 1 percent. Going back to the late 19th Century, the stock market has rallied 62 percent of the time in the Tuesday to Friday trading window, one of the best odds for any three-day period during the year.

While stocks have history on their side, commodities are still under pressure. Oil spiked on Monday following Saudi comments about doing whatever it takes to stabilize oil, but then quickly gave up the gains. Copper futures briefly fell below $2 a pound. Last year, oil prices crumbled over the Thanksgiving holiday, in part due to lower volumes over the holiday. Copper is behaving similarly to oil last year and commodities selling has been picking up in China. If there are any surprises this week, they are likely to come out of the commodities market.

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