Last week’s stellar jobs number gave the Federal Reserve enough courage to wheel out various Fed officials this week to “get us ready” for a possible rate hike in December. The only problem is that investors ended up worrying in a big way, especially when they thought back to the third-quarter GDP number of 1.5%. Investors were also worried this week about a sub-par earnings season that showed a big deceleration in earnings for the third quarter. The Fed may have been talking tough on interest rates this week, but investors said “not so fast.”
The global economy weighed in as well, and we are continuing to see commodity prices like copper fall. The price of oil was down about 2.5% on Friday alone, which put crude oil prices down about 8% for the week! We also saw some shaky retail sales numbers and earnings on Friday, so the overall vibe was that maybe one solid employment report is not enough to justify a December rate hike by the Federal Reserve. It seems as though we still have a domestic and global economy that might not respond all that well to a rate hike anytime soon.
From a technical perspective, bulls were quite concerned seeing the S&P 500 close at 2,023 on Friday, putting the index back below its 50-day and 200-day moving averages of 2,037. It had seemed as though a fresh run at possible all-time highs might have been in the cards, but the S&P 500 and the broader stock market simply ran out of steam. Falling below both its 50- and 200-day moving average is not a strong sign for the S&P 500, especially if the 50-day moving average falls below the 2,037 level, and revives the talk of a “Death Cross” stock pattern. That is no way to head toward Thanksgiving.
Many market strategists had warned that November and December could be tough, especially following the big October run-up we had seen. This could be a healthy and normal pullback, though, and bulls are hoping we can put in a higher-level base next week from which we might get all of the typical season rallies (Thanksgiving, Christmas, New Year’s, etc.). This is a challenge, however, especially with a newly hawkish Fed hinting strongly at raising interest rates as early as December.
It seems as though the Fed was simply testing the waters for a rate hike, and it would not be surprising to see the Fed backpedal as early as next week on any rate hike. One “high-profile” speech from Janet Yellen could do the trick, and the suddenly cautious stock market could be off to the races once more. The broader stock market is still pretty much flat for the year, so it is not as if the Fed needs to “reign in” and overheated stock market. There is still no sign of inflation either, so maybe the Fed will change its tune next week and say that a rate hike in December is not likely.
This would push the “rate hike question” out until 2016, which might be the ideal “holiday gift” that bulls would love to receive as we close in on the last half of November and the historically strong month of December. The Fed has made it clear that it will remain “data driven” with regards to interest rate decisions, so we will just have to wait and see if we get any additional “data” on par with the impressive employment numbers we saw on November 6th. This week’s big decline only occurred on the final two days of the week, so maybe it was just a blip rather than a larger downward trend. Let’s hope so.
It is amazing we are already halfway through November, and it is exciting to have Thanksgiving right around the corner. By the way, the Gorilla’s banana stuffing recipe will follow soon! That said, the Gorilla wishes all a relaxing November weekend, and we will be back in action on Monday. Also, on a very sad note, our thoughts and prayers go out to the victims and families of the horrible and tragic attacks that occurred in Paris late Friday.
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