Market Perspective for November 28, 2016

Equity markets have advanced for three consecutive weeks, leading major indexes to new all-time highs with broad support from several sectors. The Russell 2000 turned in a 15-day winning streak last week and early holiday sales data has been encouraging.  A slight pullback in early Monday trading following further skepticism regarding OPEC’s latest production deal did little to sway bullish sentiment as investors look ahead to a December interest rate hike and President-elect Trump’s proposed policies to stimulate the economy in 2017.

The jobs report is the last one before the Federal Open Market Committee (FOMC) meets mid-December to set interest rates. Analysts are forecasting an increase of 175,000 new jobs on Friday’s monthly nonfarm payroll report. A reading much stronger or weaker could influence if and how much the Fed adjusts rates at the meeting. Odds are now above 90 percent that the Fed will increase rates by 25 basis points at its mid-December meeting. European Central Bank (ECB) President Mario Draghi is scheduled to deliver a speech to the EU parliament Monday. His remarks will be watched closely for insights into the European economy and any future actions on the part of the ECB. There is also an important meeting of OPEC and non-OPEC countries early in the week, though many cautious investors moved out of the sector ahead of that meeting.  U.S. weekly crude inventory is forecast to report a 2-million-barrel build on Wednesday, which could further complicate oil prices should OPEC again fail to agree on production cuts.

Consumer price index (CPI) and manufacturing purchasing manager index (PMI) reports from around the world will be available this week. The latest U.S. consumer confidence reading, which is expected to rise significantly, and the revised third quarter gross domestic product (GDP) figures will be released Tuesday. The forecast is for a slight upward revision in GDP. Eurozone CPI is expected to rise slightly but remain well below the ECB’s 2-percent target. Economists expect the Chicago PMI will rise from last month’s 50.6 to 51.8. Chinese and UK PMI numbers are due out on Thursday. While the Chinese report is expected to remain unchanged, the forecast is for a slight decline in Britain. The Domestic PMI number is forecast to rise slightly.

Pending U.S. home sales and the weekly mortgage purchase applications index will be released on Wednesday.  U.S. dollar strength has led to a sell-off in Treasuries and an uptick in mortgage interest rates. The Personal Income and Outlays report is expected to show a slight increase in wages and spending. The Federal Reserve Beige Book is also due out Wednesday. Analysts anticipate a drop when the latest light vehicle sales figures are released Thursday.

Corporate news will be relatively quiet as earnings season winds down. At opposite ends of the spectrum, Tiffany’s (TIF) and Dollar General (DG) are scheduled to report this week. Supermarket chain Kroger’s (KR) is scheduled to release latest earnings and revenue numbers on Thursday, which may have been reduced due to falling food prices.

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