In post-Thanksgiving trading, the stock market closed flat and mixed, which was to be expected as investors retreated to enjoy the rest of the holiday weekend. The Dow was slightly lower while the Nasdaq and the S&P 500 were slightly higher, and that was a fitting end to a mild and quiet week. We had seen big gains last week, and just having the major indices finish flat was a plus. It meant that we are holding on to the recent gains we have seen, and it sets the market up for what could be a strong, year-end finish for equities. What is the “wild card” for the stock market is what the Federal Reserve might have up its sleeve.
We all know that the Fed has telegraphed very clearly that it wants to raise interest rates at its meeting in December. The numbers are there, as we saw with October’s strong jobs report and the upgrade in third-quarter GDP. This might give the Fed a “green light” for a rate hike, but a lot depends upon next Friday’s jobs report. Economists are looking for 205,000 new jobs for November, and while that would be down from October’s 271,000, a topping of 205,000 would be a big plus for an economy that keeps acting somewhat tentative and weak. This will be one of the final “high profile” reports before the Fed’s December meeting, so we will wait and see what sort of number we get.
The one problem with this week’s flat finish for the major indices is that stocks did not build on last week’s big gains that took the major indices up more than 3% each. This means that confidence is on hold and that stocks are in a holding pattern. Granted it was Thanksgiving Week, but some bulls were surprised that we did not see more of a seasonal lift that we witness around Thanksgiving. The Santa Claus Rally could be on the way, though, and as long as the Federal Reserve does not overly spook the stock market with a rate hike, then we could be off to the races until the New Year.
Without a strong jobs number next week, though, the Fed might find itself in a tough spot with regard to a rate hike. Earnings season for the third quarter was lackluster, and it left much to be desired. There are still many concerns about global GDP as well, and just seeing the price of oil fall by 3% on Friday alone, raises the question of a slowdown in global GDP. We will have to wait to see if the Fed takes these worries into consideration, so that is why December might make for a few “thrills and chills.” If you were the Fed, what would you do? The Fed wants to raise rates by just a quarter point, but what happens if and when it does?
Interestingly enough, the ECB and China seem to be leaning toward more QE and lower rates, so that moves in the opposite direction of a U.S. rate hike and a move toward “normalizing” interest rates to higher levels. The Fed runs the risk of panicking financial markets with a mere 25-basis point rate hike, so as we head toward the holiday season and the New Year, the case for the Fed holding off on a rate hike makes sense. The flip side of the Fed decision is that if it DOES hold off on a rate hike, it could send the message that the Fed is worried about both the U.S. economy and the broader global economy (especially China).
So, December should be telling as to where stocks might be headed in 2016. A strong finish for U.S. stocks to close out December could provide follow-through upside into 2016, which would be a bullish way to kick off the New Year. The Fed has said that it will remain “data driven” concerning interest rates, so the stakes are obviously high right now. An increasing number of strategists are saying that a decisive Fed that raises rates could set in motion a vibrant stock market rally. So again, we will just have to wait and see how the numbers and the Fed decision unfold.
That said, the Gorilla wishes each and all a wonderful, Thanksgiving Day weekend. We are loaded up with a lot of great college and pro football, which should provide a great break from the stock market this weekend. As the Gorilla mentioned, he avoided, at all costs, the madness of “Black Friday” shopping in malls this week. The whole Black Friday development of shoppers fighting over HD TV deals is a strange development, and it does not feel like Thanksgiving. Again, have a restful weekend, and enjoy the leftovers throughout the weekend. We will be back in action on Monday!
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