It was another encouraging week for the Financial markets as the NASDAQ 100 reached a record high on Tuesday. Nevertheless, the strong November start was tempered by statements from Federal Reserve Chair Janet Yellen who indicated an interest rate hike was on the table for the Fed’s December meeting. This pushed the odds of a rate hike from approximately 50 percent to 60 percent in the futures market. The addition of 271,000 new jobs in October soundly surpassed the 180,000 projected, lowering the unemployment rate to 5 percent. The strong jobs reportconfirmed traders’ confidence and pushed the odds of a December move to 70 percent.
Financials rose about 1 percent Friday, when S&P 500 Index fell 0.03 percent. For the week, financials rallied 2.7 percent versus a 1.0 percent gain for the S&P 500 Index. The Nasdaq rallied 1.8 percent, while the Dow increased 1.4 percent and the Russell 2000 advanced an impressive 3.3 percent.
SPDR KBW Regional Banking (KRE) gained 7.3 percent on the week and was one of the best performing financial subsector funds. The U.S. dollar also enjoyed a great week, assertively advancing on nearly all developed and emerging market currencies. WisdomTree Bloomberg U.S. Dollar Bullish (USDU) set a new 52-week high on Friday and the more widely followed U.S. Dollar Index finished less than 1 percent away from a high for the same period. Bonds came under pressure and Treasury yields rose with the 10-year yield trading near 2.3 percent. Utilities suffered substantially this week. SPDR Utilities (XLU) slid 3.5 percent for the week, accumulating its losses during Friday trading as investors priced in increased interest rates.
Other economic news was mixed during the week. The ISM manufacturing index came in at 50.1, its lowest level since May 2013, however, the service index turned in an unexpected 2.2-point gain for October, rising to 59.1 (any number above 50 signals expansion). Consumer credit increased less than expected in September and consumer spending in October posted its smallest gain in 8 months. The uptick in credit was driven by automobile and student loans. While the U.S. market was boosted by the earnings reports of Visa (V), Tesla (TSLA), Facebook (FB) and Sprint (S), poor news from Disney (DIS), Qualcomm (QCOM) and Whole Foods (WFM) put a damper on an even larger potential rally. Duke Energy (DUK) also reported weaker earnings than expected.
The Shanghai Composite rallied strongly during the week, raising optimism in China. The Japanese Nikkei 225 Index extended gains on account of the weaker yen. In Europe, Mario Draghi said the European Central Bank cut its forecast for GDP growth in the euro-zone while reiterating that quantitative easing is just one tool that the group will use to counter economic headwinds. iShares MSCI EAFE (EFA) fell 0.3 percent while iShares MSCI Emerging Market (EEM) rallied 1.2 percent. Commodities continue to signal instability in China that is likely to continue, with oil prices sliding more than 4 percent on the week, and industrial commodities, such as copper, falling as well.