Santa Claus brought good tidings for stocks as the S&P rallied narrowly back into positive territory for the year. In an abbreviated, low-volume holiday trading week, the Dow, Nasdaq and S&P climbed 2.5%, 2.6% and 2.8%, respectively, boosted by economic data and resurgent commodities prices. The data and oil rebound also boosted the beleaguered high-yield bond market, which has a significant percentage of energy-related credits, while curbing demand for US treasuries.
Economic Data
The final US Gross Domestic Product (GDP) reading for the third quarter came in at 2.0%, down from the 2.1% reported last month but above expectations of a revision to 1.9%. Existing home sales declined 10.5% in November, more than expected and the steepest decline since 2010. The National Association of Realtors (NAR) attributed the decline to new rules implemented by the Consumer Financial Protection Bureau as well as rising home prices and tight inventory. However, new home sales, which represent about 10% of the market, grew at a better than expected 4.3% pace for an annualized growth rate of 14.5%. Flat durable goods orders were the latest sign of softness in the US manufacturing sector.
Asia
Japan’s Nikkei 225 Index fell 1% on the week but remains up nearly 8% year-to-date. The Japanese government projected real GDP to grow 1.7% and nominal GDP to grow 3.1% in fiscal 2016, increases from the prior year. The government expects the Trans-Pacific Partnership (TPP) trade deal to have a positive effect on economic growth while acknowledging risks from a potential slowdown in China and US monetary policy normalization.
The Chinese government discussed structural reforms at the Economic Work Conference, revealing plans to pursue more aggressive fiscal policy in order to reduce housing inventory and excess industrial capacity while improving infrastructure. After GDP growth hit a 25-year low in 2015, economists are skeptical the Chinese government will be able to produce its desired 7% expansion.
Europe
Stocks across the pond rallied for the second straight week as the Stoxx Europe 600 gained 1%. Spanish equity indexes lagged and bond yields spiked, however, after elections produced a four-way split that will complicate the creation of a stable coalition government.
Week Ahead
- Monday: Dallas Fed manufacturing survey
- Tuesday: S&P Case-Shiller house price index, US consumer confidene
- Thursday: US jobless claims
- Friday: US markets closed for New Year's Day
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