Market Perspective for December 8, 2014

Asian shares climbed in Monday thanks to the announcement of China’s large trade surplus in November. The trade surplus leapt to $54.7 billion, easily beating the August record of $49.87 billion. Although a strong trade balance would normally strengthen the Chinese yuan, traders sent the currency lower on expectations of a looser monetary policy moving forward

In Japan, third quarter GDP was revised lower, from a 1.6 percent decline to 1.9 percent drop. The slide was caused by weakness in one of the most important areas of the economy, business investment. Prime Minister Shinzo Abe has called a snap election for December 14 as he seeks a mandate to continue his “Abenomics” policies. The next policy step is delaying the implementation of an even higher sales tax. The first part of the sales tax increase was enacted in April and sent Japan into recession. Abe’s Liberal Democratic Party (LDP) is expected to win easily, and the party might even pick up seats, giving it a clear mandate. The yen is likely to trade on election expectations this week, with a lower yen signaling investors expect gains for the LDP.

In the United States stocks will try to build on gains made following Friday’s strong payroll and wage growth data. It has been six long years since the last recession and while parts of the economy have performed well, overall GDP growth has been weak compared to previous recoveries. Strong wage growth in November also indicates the economy may finally be turning a corner. Stocks didn’t rally son the news because these data improvements have historically been revised downward. This is not necessarily bad news as skeptical investors help ensure the market does not become overbought. It could be months before most investors realize a trend change is occurring and then price it into the market.

This week will be a very light for economic data, with retail sales data from November grabbing the biggest headlines. Analysts forecast growth of 0.4 percent, and growth of 0.1 percent ex autos. Initial reports from Black Friday were generally below expectations, but with consumers spending more online, the result may have been skewed to the downside. Retail stocks fell last week in the wake of Black Friday sales data, which could set up a rebound if data is solid.

We will see few significant earnings releases. Retailers Costco (COST), Autozone (AZO) and RadioShack (RSH) will grab the most attention. The homebuilder sector will see reports from Toll Brothers (TOL) and Hovnavian (HOV). Homebuilders funds have performed well in recent weeks and a solid earnings report could push the sector back to its highs for the year.

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