S&P 500 Gains in Very Sloppy Action
Today's financial recap and tomorrow's financial outlook.
Yesterday's weakness, which had snapped the prior day's low, did not deter a rally in the opening moments of the day. In the first five minutes, the S&P 500 shot up 12 points and rose as much as 30 by the end of the first hour. The strong November retail sales report was cited as a reason behind the strength. Sales rose 0.7% in the month thanks to strong growth in the core groups, compared to the economist estimate of +0.4%. Separately, Treasury Secretary Jack Lew said at the NYT Dealbook Conference that he thought it was premature to think the problems with energy would spread to the rest of the economy. He viewed the recent drop in oil as a tax cut for the US and did not expect lower shale production as a result.
By the end of the day, all of the 1.5% rally in the SPX had been completely retraced, and the futures even traded negative on the day in the post-market.
High yield bonds and oil continued to trade in lockstep. Front month West-Texas crude oil fell by 2% to 59.70 at the close of equity trading, and continued to fall in after hours trading. The average HY bond spread saw an additional 5bps of widening during the session.
Retail stocks were outliers to the upside today, driven by positive data. The advance November Retail Sales report was much better-than-expected, with a 0.7% month-over-month gain vs. the 0.4% consensus.
Transports and airline names also did well today, courtesy of the drop in oil.
Tomorrow's Financial Outlook
The main thing on investors minds tomorrow will be whether or not the late, deep selloff in US equities follows through. Two out of the last three days we've seen heavy buy interest, but in both cases they've been overcome in the subsequent 24 hours. On the economic data front, producer prices for November will be reported, as will the preliminary December University of Michigan consumer confidence index. Prices are expected to decline 0.1% from the prior month after rising 0.2% in the month before. Consumer confidence is expected to rise modestly to an index reading of 89.5 from 88.8 in the month prior.
A big set of Chinese data is due out overnight. Fixed asset investment, industrial production, and retail sales for November will be reported. It is interesting to note that the latest spate of weak economic data drew immediate calls for further easing by China's government, so we shall see what happens tonight. Speculative trading has been extremely high in the China A-shares market in anticipation of such easing measures.
There are no major earnings reports scheduled for tomorrow.
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