Market Perspective for December 2, 2016

While the Nasdaq and the S&P 500 came under slight selling pressure this week, the Dow Jones reached another all-time high. Investors rotated out of technology companies that led the markets higher before the election and into financial and energy stocks. This follows an agreement between OPEC and non-OPEC nations to cap production output, collectively reducing output by 1.2 million barrels per day. West Texas Intermediate Crude rallied more than 10 percent on the news. A surprise reduction in crude inventories also bolstered oil prices. For the month of November, the Dow and S&P 500 were up over 5 percent while the Nasdaq gained more than 4 percent.

Shares of the Energy Select Sector SPDR ETF (XLE) gained almost 3 percent, while the SPDR Financial Select Sector ETF (XLF) rose more than 2 percent. The U.S. dollar index and the price of gold were down slightly, and the 30-year Treasury index was down almost 2 percent.

European Central Bank (ECB) President Mario Draghi warned policymakers about the risks of holding rates too low for too long on Monday in advance of a Dec. 8 meeting to discuss the merits of the central bank’s current quantitative easing program versus the process of raising interest rates. The eurozone consumer price index (CPI) increased 0.6 percent, in line with estimates. While the U.K. manufacturing purchasing manager index (PMI) signaled a slight slowdown in November, Chinese PMI numbers beat expectations.

U.S. consumer confidence reached a nine-year high on Tuesday and revised third-quarter GDP rose 3.2 percent, the strongest move upward in over two years. Domestic PMI figures also handily beat expectations. Pending U.S. home sales were relatively flat, while the weekly mortgage purchase applications index dropped close to 10 percent as mortgage rates continue to inch upward. As expected, the Personal Income and Outlays report indicated a slight increase in wages and spending. On Wednesday, the Federal Reserve Beige Book confirmed that the economy continues to grow across most of the country. While analysts anticipated a slight drop, light vehicle sales rose in response to incentives from dealers and automakers. Weekly unemployment claims reached a fresh 43-year low on Thursday. Friday morning’s labor report revealed an increase of 178,000 new jobs and a drop in unemployment to 4.6 percent, reinforcing expectations of a rate hike at the next Fed meeting.

Tiffany’s (TIF) shares rose more than 6 percent when the company easily beat consensus estimates, while Dollar General (DG) shares were off 5 percent after the weaker-than-expected quarterly results. Analysts believe a rise in gas prices hurt the retailer’s consumer base. After selling off ahead of the announcement, shares of supermarket chain Kroger’s (KR) reclaimed break-even territory. Although sales edged up slightly, the company expressed its concerns about the future negative effects of falling food prices and provided cautious future guidance.

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