Market Perspective for December 21, 2015

Stocks opened to the upside on Monday, shaking off Thursday and Friday’s losses. The market is likely to hold or expand on those gains with a “Santa Claus rally” in stocks, though the window is short; the U.S. stock market will close at 1 p.m. on Thursday for the Christmas holiday and won’t reopen until Monday the 28th. If traders get an early start on the weekend’s festivities, then light volume should favor the seasonal upside bias.

Economic data is light this week, with only a few reports released. On Tuesday, the Commerce Department will issue its third and final estimate of third quarter gross domestic product. The average forecast is for 1.8 percent growth, down from the prior estimate of 2.1 percent. Additionally, existing home sales for November should reflect a 0.5 percent increase, an improvement over October’s 3.4 percent decline. November new homes sales on Wednesday will round out the housing reports for the week. The final University of Michigan Consumer Sentiment Index is expected to show a reading of 91.9, up from the initial December estimate of 91.8.

The core inflation of personal consumption expenditures (PCE) for November will also be released on Wednesday. Core inflation climbed to 2.0 percent in November, hitting the low end of the Federal Reserve’s inflation target. The Fed prefers, however, to use the PCE inflation figure provided by the Bureau of Economic Analysis, which also calculates the nation’s GDP growth. Core PCE was up 1.3 percent in October.

The slide in oil prices continues to weigh on the market. Brent crude broke its 2004 low on Monday and West Texas Intermediate is flirting with its lows from the financial crisis. Increases in U.S. drilling may be compounding the problem. Although equities advanced on Monday morning, energy shares struggled to stay positive. Low energy prices benefit consumers, but some producers and even some nations could run into trouble if prices fall, including Russia and Saudi Arabia.

Nike (NKE) and food conglomerate ConAgra (CAG) will report on earnings this week. Nike is expected to beat Wall Street estimates in revenue and earnings per share (EPS). Analysts anticipate Nike will report revenues of $7.38 billion and an EPS of $0.86 for the company’s fiscal second quarter. The sportswear company’s shares are up 37 percent on the year, contributing to recent success in both the Dow Jones Industrial Average and the consumer discretionary sector. ConAgra is expected to issue disappointing second quarter sales figures. Investors will be watching for information regarding the company’s restructuring plans.

Shares of Disney (DIS) will also be in focus this week. Despite the Star Wars buzz, shares of Disney fell on Friday and again on Monday morning. The movie set a record for U.S. box office debuts, but missed setting the global record due to a delayed January release in China which is now the world’s second largest film market. Earlier this year, Jurassic World set the global open record when the U.S. and Chinese theaters screened the film simultaneously.

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