Market Perspective for December 28, 2015

Holidays will keep volume light this week. Some markets are closed today for Boxing Day (including the UK and Canada) and several European markets will be closed on December 31. The U.S. markets will be open for a full day on Thursday and all markets will close for New Year’s Day on Friday.

The holiday-shortened week will limit trading opportunities and could determine which indexes finish the year in the black. The S&P 500 advanced slightly on Thursday following a rally in commodities and is up just 0.1 percent on the year excluding dividends. The S&P 500’s two percent yield could ensure a gain for the year, provided any drops that occur this week aren’t drastic. The Dow Jones Industrial Average has a steeper hill to climb, but dividend payments and a small gain this week could potentially lead it back into positive year-end territory as well. The NASDAQ needs no help and could finish with a respectable mid-single digit return by the end of the week. The Russell 2000 and the MSCI EAFE Indexes are both likely to finish the year with losses.

The market should generally finish higher in a light trading week. The last few trading days of the year are traditionally bullish, though Monday’s trading gave no clear indication of adherence to that trend.  The downside risk relates to the selling of shares for year-end tax purposes. Investors have until the last day of trading to harvest tax losses for 2015.

The Dallas Federal Reserve manufacturing survey, the S&P/Case-Schiller Home Price Index and pending home sales data will be released this week. Last week’s existing home sales data was weaker than expected, which may have been the result of rule changes regarding the extension of time surrounding closing periods that complicated the house-buying process. An increase in sales this week could indicate that the market quickly adjusted to the new rules. The S&P/Case-Schiller index is expected to match its highs from 2007.

An unexpected draw in crude inventories boosted oil prices last week, so investors will be watching the oil inventory report for a repeat on Wednesday. The Chicago Purchasing Managers’ Index will be released on Thursday. It is expected to rise to 50 from the 48.7 reported last month. A reading above 50 signals expansion in the manufacturing sector. There will be limited economic news from overseas markets.

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