Market Perspective for November 20, 2017

Stocks rallied at the open on Monday as investors bid consumer stocks ahead of the holiday shopping season. Consumer discretionary made a new 52-week high on Monday.

Markets will close for Thanksgiving and open half the day on Friday. The holiday-shortened week has been historically good for stocks. Since 1945, stocks have rallied 75 percent of the time with an average return of 0.6 percent. Retail stocks could carry momentum from recent earnings forward if Black Friday sales are strong. SPDR S&P Retail (XRT) opened higher on Monday as well.

Analysts anticipate home sales hit an annualized pace of 5.45 million in October, up from 5.39 million in September. Durable goods orders are expected to increase 0.5 percent. Friday will bring the flash manufacturing and service PMIs for November. The November Federal Open Market Committee meeting will also be out this week. Odds of a December rate hike climbed to 100 percent in the days following the meeting. Rate hike odds have crept even higher in the futures market, with the odds of a 50 basis point hike currently at 8.5 percent.

The euro weakened on Monday and gold tumbled after German Chancellor Angela Merkel failed to gain support following her September electoral win. Germany must now hold another election. iShares MSCI Germany (EWG) has underperformed the S&P 500 Index since the September election. The euro has also struggled against the dollar. Merkel was a major force of stability during the multiple rounds of the Greek debt crisis and a counterweight to rising populist forces in Europe. The current political trajectory in Germany is bearish for the euro and that will create headwinds for developed-market funds.

The 10-year Treasury yield opened the week at 2.35 percent. It edged higher on Monday after German bond yields climbed higher. Libor started moving last week in anticipation of a December rate hike. The 1-month interbank interest rate closed last week at 1.29 percent, up from 1.25 percent. A hike at the December FOMC meeting will lift the Fed Funds Rate 0.25 percent, to a range of 1.25 to 1.50 percent.

West Texas Intermediate crude oil slipped below $56 a barrel on Monday. Energy stocks slid over the past two weeks, but the energy exploration and services subsectors rebounded over the past few days. Natural gas prices also fell on Monday.

Earning reports will be light this week. Medical device maker Medtronic (MDT) (CRM), Analog Devices (ADI), Hormel (HRL), Campbell Soup (CPB), Deere (DE), Lowe’s (LOW), Dollar Tree (DLTR), Urban Outfitters (URBN), Intuit (INTU), Agilent (A) and Palo Alto Networks (PANW) are all scheduled to report.

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