Investors are hoping that a Santa Claus rally will arrive this week in a shortened trading week and erase the negative sentiment from last Friday which saw the S&P 500, Dow, and Nasdaq all finishing at the lows of the day and all down over 1.5 percent.
Several market fundamentals are causing investors to feel pessimistic heading into the close of 2015.
Last Wednesday the Federal Reserve raised interest rates at a gradual pace for the first time since 2006 and projected 4 rate hikes in 2016, even as Fed Chair Janet Yellen emphasized during her press conference that if the economy were to disappoint, the federal funds rate would likely rise more slowly.
Weak Crude Oil Prices
On Friday WTI Crude fell -1.20 percent and dropped below $35 a barrel.
Crude oil has dropped over 50 percent since mid 2014 and remains under pressure following OPEC’s recent decision in early December to make no production cuts.
That decision, viewed together with a report from the IEA stating that oversupply would continue throughout much of 2016, even with demanding weakening, has sent the oil bulls running for cover.
Beginning in 2016 oil producer nation Iran will break off the shackles of international sanctions and sell more crude oil in the global market at an inopportune time, resulting in downward pressure for the price of crude oil.
Two main drivers behind weak U.S. inflation in 2015 are lower energy prices combined with a strengthening dollar that impacts the prices of imports and drives commodities lower.
The Federal Reserve’s preferred inflation gauge, core PCE price index, increased 1.3 percent annualized in October, and still remains below the Fed’s 2 percent inflation target, held down by a 2.2 percent annualized decline in the price of core goods.
The Week Ahead
On Wednesday investors will digest another PCE inflation report ( November) alongside a host of economic data that ranges from durable goods and durable orders (Nov), Personal Income and Personal Spending (November), New Home Sales (November), Michigan Sentiment (November), Crude Inventories (12/19).
A day earlier on Tuesday, the third estimate for Q3 2015 GDP will be reported. Economists from briefing.com forecast 2.1 percent growth rate which would match the last estimate. Also on Tuesday, the market will digest existing home sales for November and the FHFA Housing Price Index for October.
Thursday December 24th will see a shortened trading day and close at 1:00 EST.
The only economic reports that will be reported on Thursday are continuing and initial jobless claims (12/19), in addition to natural gas inventories (12/19).
On Friday December 25th the markets will be closed.
-Johnathan Schweitzer firstname.lastname@example.org