The market posted a mild 0.05% gain

BY  | FROM  | 2015-11-30 18:35

After two weeks of broad moves, up 3.27% last week, with 448 issues up, and down 3.63% the week before that, with 456 issues down, the market took a breather, as it posted a mild 0.05% gain, as it digested the Bird known as Thanksgiving, along with the Fed, a Russian plane downing (by Turkey), and lots of (mostly positive) economic data.  Among the easily digested was the continuation of M&A, which should fill the coffers of investment firms’ stomachs for quarters to come—ho, ho, ho (hopefully they will be buying at the bar).  Not as easy to stomach was brick-and-mortar retail stores, which, while still putting on a cautiously optimistic face, but had initial lower  than expected traffic reports, even as stores were jammed for the Black Friday bargain hunting tradition.  Web-based sales, at least for web-based issues, not brick-and mortar web sites, however, appeared to be busy, as Thursday, Thanksgiving Day say strong on-line sales, and the term “cyber Friday” appeared, along with hopes for a cyber Saturday.  While that may leave cyber Monday short, there seemed little fear of the overall web-based sales falling short. 

The weekend will bring more reports, some hyped and a few real ones, with issue reaction potentially at Monday’s opening (although there was no apparent setup today at the close). For a shortened week, there was a lot of economic news, which was mostly positive. The second report on third quarter GDP posted a 2.1% annual rate, up from the initial 1.5% rate, increasing the probability of a December fed increase. The October Eurozone Markit Purchasing Managers' Index came in at 54.4 (up from last month’s 53.9)—the highest level since May 2011. The October Existing Home Sales posted a 3.4% monthly decline, but it was up 3.9% year-over-year. The S&P/Case-Shiller 20-City Composite Home Price Index report for September posted a 5.5% year-over-year gain. The October Consumer Confidence Report came in at 90.4 when a much higher 99.6 was expected (last month was 99.1)—it was the lowest level in a year. The October Durable Orders report came with a 3.0% gain when a much lower 1.8% gain was expected, but the year-to-date Durable Orders were down 4.2%.

Personal Income for October came in as expected (up 0.4%), as Consumer Spending came in lower than expected (0.1%). The PCE Chain Price for year-over-year October was up 0.2%, as Core was up 1.3%. The September FHFA Home Price report posted a 0.8% monthly gain, twice the expected 0.4% gain, as the year-over-year gain was up 5.7%. The New Home Sales report for October came in up 10.7% for the month, even as the annual rate of 495,000 units missed the 499,000 estimate (September was revised downward to 447,000 from the originally reported 468,000). In M&A, biopharmaceutical and healthcare product maker Pfizer (PFE; up 1.9% for the week) and off-patent medication issue Allergan PLC (AGN; off 2.3% for the week) announced their expected merger, via mostly a share exchange valued at USD 155 billion, which would create the world’s largest drug maker.  The inversion (reverse) deal structure would permit the new company to move outside of the U.S. to take advantage of lower tax rates.  The deal faces resistance from U.S. regulators who wish to protect the U.S. tax base; estimates are that Pfizer would save USD 2 billion in taxes. U.S. ATM maker Diebold (DBD; off 7.8% for the week) made a USD 1.8 billion bid for German competitor Windorf Nixorf (WNXDF). A private deal that would involve CVC Capital Partners buying pet supplies and product and maker Petco Holdings for USD 4.5 billion from TPG was reported in the papers; earlier reports had said TPG was exploring an IPO for Petco. Activist investors remained in the news, as new disclosures showed Icahn held 7.1% of copier and duplicator system maker Xerox (XRX), Persing Square held 9.9% of biopharmaceutical seller Valeant Pharmaceutical (VRX), and Elliott Management held 6.4% of aluminum producer Alcoa (AA). Also of note, was, conservative Mauricio Marcri (the mayor of Buenos Aires) was elected President of Argentina, defeating liberal Daniel Sciolo; the election centered on the Argentine economy. Saudi Arabia said it would cooperate with oil producers to stabilize prices, likely pushing oil prices up (for that moment).

Turkey shot down a Russian jet fighter over its airspace on Tuesday, which pushed markets down, but tensions eased, as markets moved past the incident and posted a small (0.12%) gain on that day. Chinese authorities announced investigations into potential trading violations, with the immediate impact being that the Shanghai declined over 5%, as some issues, such as Citic Securities, which is Chines largest broker, declined the daily limit of 10%. The market was little changed for the week, even as events (the Russian plane downing) and economic reports (GDP, home income, and cost reports) were plentiful.  The market closed the holiday at 2,090.11, up 0.05% from the prior week’s 2,089.17.  It was the eighth gain in the last nine weeks. The slight change was in stark contrast to last week’s 3.27% gain and the prior week’s 3.63% decline.  The week left the market up 1.52% year-to-date, as issue movement was again hidden, with 62% of the index having moved at least 10% year-to-date: 151 issues are up at least 10% and 160 are down at least 10%. Breadth remained positive, as 270 issues gained for the week, down from the overpowering 448 advancers last week (and only 49 the week before that).  Two-hundred and thirty-four issues fell for the shortened week, up from 57 in the prior week (and 456 the week before that).  Two issues gained at least 10% (four did last week), and another 13 issues were up at least 5% (105 were last week).  Two issues declined at least 10% (three did so last week), and another three issues lost at least 5% (five last week).  Five sectors gained and five declined for the week, compared to last week’s sweep when all 10 gained.  While the overall week posted little change, sectors varied.  Energy moved up the most, up 1.32%, as oil moved higher, and some concern over turmoil emerged; the sector remains off 15.39% year-to-date, the worst of any group in the index.  Utilities declined the most, off 1.62% (off 10.21% year-to-date), as investors moved away from the interest-sensitive sector.  Health care managed a 0.74% gain (up 4.95% year-to-date), even as concern over profitability from Obamacare remained present in the market.  Consumer discretionary posted a 0.22% gain, as the overall shopping season was seen as slightly better, but maybe not as better as expected.  The sector is up 12.69% year-to-date, the best of any group. Trading levels declined for the week (adjusted for the days), as volume was 12% lower than prior week and 5% lower than the one-year average. 

Measurable volatility (the high-over-low price variance) significantly declined, as prices moved within a range all week, as the high-to-low was 1.22, compared to last week’s 3.85% and the one-year average of 2.72%. VIX declined for the week to close at 15.12, down from last week’s 15.47 and significantly down from the prior week’s 20.31.  Interest rates slightly declined, as the 10-year U.S. Treasury closed at 2.22%, down from the prior week’s 2.26% (2.28% the week before that); the 30-year U.S. Treasury, however, closed at 3.00%, down from last week’s 3.02%.  Oil moved up on Tuesday’s plane downing, but it remained in the low-to-mid USD 40s, closing the week at USD 41.77, up from last week’s USD 39.39.  Gold closed down again, at USD 1,056.10, down from last week’s USD 1,076.70 and the prior week’s USD 1,081.20.  The U.S. dollar slightly gained, as the euro traded under 1.06 and closed at 1.0591, down from the prior week’s 1.0647.  The pound was at 1.5024, down from the previous week’s 1.5192, and the yen (quoted in yen-to-U.S. dollar, so higher is weaker) was at 122.86, which was down from the prior week’s 122.81. 

The yuan closed at 6.3983, up from last week’s 6.3885. S&P Dow Jones Indices announced that it would add technology services to the U.S federal Government Issue CSRA (CSRA) (which is being spun-off by Computer Science [CSC]) to the S&P 500 after the close on November 27, 2015 and remove Computer Science from the S&P 500, as it will add the issue to the S&P MidCap 400 after the close on November 30, 2015. Next week will center on Friday’s employment report, the last major economic report before the Fed’s December 15-16, 2015 meeting; a meeting that most believe will start the interest rate increases with a 0.25% hike.  Earnings will be light, with only six issues scheduled (and four the week after that).  Meanwhile, analysts will update their Q4 estimates, with some adding 2016 projections.  Some smaller window dressing could occur, but if so, it may be too small to affect the overall market (although large trades in specific issues will be noticeable). 

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