Market Direction Week of December 5, 2016©

Market Direction: BULLISH alert issued 11/10/2016

Last Week Review: Stocks were mixed on the week as the Dow Jones Industrial Average was essentially flat, the S&P 500 fell modestly, and the NASDAQ fell by more than 2.5%. The dispersion between the index returns has been driven somewhat by sector rotation as investors have been selling technology stocks and buying financial services stocks. In addition, the energy sector rallied on the week as OPEC officially announced an agreement to collectively reduce oil production by 1.2 million barrels per day (3.6%) beginning January 1 for a six-month time period.

How the market finished last week, the S&P 500 down 1.0%, the Nasdaq down 2.7%, and the Dow up 0.1%.

This Week: Q3 earnings season has pretty much concluded at this point.

Now that all major indices have hit record highs following the election, a consolidation period is underway. With the final labor department report now released, risks have fallen but upside gains will also likely be limited.

While the election is over, the actual inauguration isn’t until January 20^th, and I believe volatility is likely to remain relatively low and gains are likely to be modest as valuation concerns begin to re-emerge. The 12-month trailing P/E (Price to Earnings Ratio) for the SPX is now >25; a 7-year high.

From my perspective, the only remaining domestic issue that could cause volatility in the markets is the 12/14 FOMC meeting; and with a 100% expectation of a hike, even that should be a non-event. Globally, the Italian referendum on Sunday (12/4) has the potential to roil European markets but aside from some possible volatility in the overnight futures Sunday night, is unlikely to have a significant impact on US markets.

Economic Calendar: ISM Non-Mfg Index (12/5), International Trade (12/5), JOLTS (12/7), Consumer Confidence (12/9) 

Some of the major earnings announcements on deck: AZO, TOL, COST, PLAY, LULU.

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