Market Perspective for December 23, 2016

Major indexes maintained new all-time highs hit early in the week, despite minor selling pressure, to finish the week marginally higher.  Recent polls show investors believe any negative impact from the recent hike in interest rates by the Federal Reserve will be short-lived, suggesting the bull rally could have legs well into 2017. Increasing wages, labor market strength, and overall economic expansion were confirmed by the Bureau of Economic Analysis’s third-quarter GDP growth revision to 3.5 percent from the prior 3.2 percent.

The Bank of Japan (BoJ) reported increased activity and kept its benchmark interest rate unchanged this week, as expected, leaving the yen near 11-month lows. The Nikkei, however, hit a new 52-week high. The U.S. Dollar Index pushed to a new 14-year high during the week against a weaker euro. The Canadian dollar fell on Friday following reports of economic contraction in October.  After the euro, yen and British pound, the Canadian dollar is the fourth largest component of the U.S. Dollar Index.

November existing home sales were unexpectedly strong at 5.61 million, close to a 10-year high and the third consecutive month of rising sales. The consensus estimate called for sales to drop in the face of rising mortgage rates, but buyers are still moving off the sidelines, spurred by rate increases. New homes sales hit 592,000, also beating expectations. The weekly oil inventory report showed a larger-than-expected increase. Libya also indicated that it might increase production over the next few months. West Texas Intermediate Crude, however, remained unchanged on the week.

Weekly unemployment claims reach a six-month high of 275,000, but any number below 300,000 signals a strong labor market. The Personal Income and Outlay reports showed a slight decline in November wages and slower-than-expected consumer spending growth. Durable goods orders were stronger than anticipated, down 4.6 percent from last year.

On Monday, homebuilder Lennar (LEN) reported an 11-percent jump in sales. Although the company beat forecast estimates, shares fell on the week. Nike (NKE) earnings also beat consensus forecasts and eased some concerns about a slowdown in the face of increased competition, pushing shares higher. FedEx (FDX) shares fell 4 percent following a mixed earnings report. While FedEx beat its revenue forecast, the company missed earnings estimates. On Wednesday, shares of Micron Technology (MU) jumped more than 13 percent following EPS and revenues that handily beat expectations.

For the third consecutive quarter, Bed, Bath & Beyond (BBBY) reported disappointing EPS and revenue numbers. Shares plunged more than 10 percent on the news. Although shares of Rite Aid (RAD) slipped following a weak earnings report, the stock finished higher for the week after the firm announced Fred’s would purchase 865 stores. Selling the stores will also help Rite Aid gain regulatory approval for its acquisition by Walgreens (WBA).

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