The U.S. market stumbled on Monday as investors reacted to disappointing Black Friday numbers. Consumer traffic and spending did not meet expectations but that's likely because so many stores started their Black Friday deals earlier. Plus more and more consumers are shopping from home or their mobile phone instead of standing in line out in the cold for those door buster deals. Traders bought Monday's dip and the S&P 500 and the Dow Jones Industrial Average both posted their seventh weekly gain in a row and tagged new all-time highs.

Crude oil continued to sink follow the prior week's plunge with oil prices losing another -1.1% and closing at levels not seen since 2009. Yet a lot of the oversold oil stocks bounced and the oil index gained +2.1%. The same can not be said for the more volatile oil service stocks as the OSX oil service index lost another -2.3%. The market did see strength in the financials with the banks up +2.6% and continued strength in the SOX semiconductor index, which added another +2.5% to close at multi-year highs.

The euro and the yen continued to sink and closed at new multi-year lows. This helped push the U.S. dollar to levels not seen since 2006. The U.S. ten-year bond yield ended the week at 2.3%.

Economic Data

We had a lot of economic data to digest. The ISM manufacturing index came in higher than expected at 58.7. The ISM services index rose from 57.1 to 59.3. Economists were only expecting a rise to 57.5. Numbers above 50.0 suggest growth. Factory orders from October fell -0.7% following a -0.5% drop in September and a -10% plunge in August. Meanwhile the U.S. continues to see healthy auto sales. The latest numbers from November suggest the U.S. is on pace to see 17.2 million cars sold this year. That's the strongest pace since 2003.

The biggest economic report of the week was the U.S. nonfarm payroll report. Economists were expecting about 228,000 new jobs in November. The Bureau of Labor Statistics said the November number was +321,000. That is higher than the highest forecast than all the economists polled by Bloomberg. November's +321K is the best month of job gains since January 2012 when the U.S. added +360K.

The government also revised the October jobs number higher from +214K to +243K. September's was revised higher from +256K to +271K. The three-month average is now up to +278,000. Thus far 2014 has been the best year for job creation since 1999. The government also reported that the headline unemployment rate was unchanged at 5.8%. Labor force participation was also unchanged at 62.8%.

Overseas Economic Data

China reported its non-manufacturing PMI improved slightly from 53.8 to 53.9. Numbers above 50.0 suggest growth. I thought the S&P 500's rally from its October low (+14.0%) was impressive. Yet the Chinese Shanghai Composite is soaring. Expectations for the Chinese government to launch even more stimulus has powered their index to a +20% gain in less than three weeks. The Shanghai Composite is now at multi-year highs.

Meanwhile Europe continues to languish. The latest reading on Eurozone Q3 GDP was unchanged at +0.2% growth. France said their unemployment last quarter rose from 10.1% to 10.4%. This is worse than expected and the highest unemployment since 1998. Germany reported its factory orders improved +2.5%, which was significantly above expectations. The German Bundesbank lowered their 2014 GDP estimate for Germany from 1.9% to 1.4% growth. They also lowered their 2015 estimates from +1.8% to +0.8% growth.

The European Central Bank (ECB) was also lowering their forecasts. Last Thursday was the last ECB meeting for 2014. The governing council is now forecasting inflation to be 0.5% in 2014 and 0.7% in 2015. They're expecting full year 2014 growth to be +0.8% while 2015 has been downgraded to +1.0%, that's down from their prior estimate of +1.6%.

Many people were expecting ECB President Mario Draghi to announce some new form of stimulus or QE measures on Thursday. Once again he did not. This man has perfected the art of all talk and no delivery. He's been promising to do "whatever it takes" for two years. According to Bloomberg, now the ECB is planning launch new QE measures at the upcoming January meeting. Mario's failure to deliver new stimulus briefly suppressed the markets on Thursday. I'm a little surprised equities didn't see more weakness. Instead the ECB is dangling the carrot of more QE measures next month.




Major Indices:

The S&P 500 found support near 2050 on Monday last week. The big cap index has rebounded back to new all-time highs. The +0.38% gain last week puts the current streak at seven up weeks in a row. Year to date the S&P 500 is up +12.3%.

The index is overbought and due for a correction but it may not happen this year. The path of least resistance is up. The next resistance level is probably the 2100 mark.

chart of the S&P 500 index:

The NASDAQ composite posted a minor loss for the week of -0.2%. The composite index continues to find support near its 10-dma. The 4800 area remains short-term overhead resistance. Should the NASDAQ retreat then the 4700 level is the next numerical support. Below 4700 then the 4600 is likely stronger support. The NASDAQ's 2014 gain is currently +14.5%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 ($RUT) managed to outperform the large cap indices last week with a +0.78% bounce. Unfortunately, it's tough to get too excited here. The $RUT has been churning sideways for the last several weeks. Even if the $RUT breaks through short-term resistance in the 1190 area then its all-time highs near 1210-1215 remain a challenge. We can probably take some comfort in the fact that the $RUT did not break support near 1150 and its 200-dma. Year to date the $RUT is up +1.5%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows this week. There is no central bank activity to worry about. There are no major economic reports to move the market. Earnings are over until mid January.

Economic and Event Calendar

- Monday, December 08 -
Germany's industrial production

- Tuesday, December 09 -
Wholesale inventory data

- Wednesday, December 10 -
(nothing significant)

- Thursday, December 11 -
Weekly initial jobless claims
U.S. retail sales for November
Business inventory data for November

- Friday, December 12 -
Producer Price Index (PPI)
University of Michigan Consumer Sentiment survey
China industrial production

Additional Events to be aware of:

December 17: FOMC meeting

Looking Ahead:

As we look ahead the market will turn its attention to Christmas and the end of the year. Christmas is just 13 trading days away. You have 17 shopping days left. We only have 17 trading days left in 2014.

Seasonal trends are bullish for stocks. December is one of the strongest months of the year for equities. Pretty soon you'll start hearing about the possibility of a Santa Claus rally. Money mangers will be chasing winners trying to improve their results before the calendar rolls over. That also means that the worst performing stocks in the market could face some tax-loss selling.

As you know there was a lot of hype about Black Friday before Thanksgiving and the final numbers didn't pan out to expectations. Yet I suspect the environment has changed. Black Friday's traffic and shopping numbers came in low only because so many stores started their Black Friday deals days before the actual event. Consumers are still shopping but they're doing a lot of it online.

Wal-Mart (WMT) said Black Friday was their best online shopping day in history. The Guardian reported that Cyber Monday drew big business with online shopping up +17%. ComScore reported that Cyber Monday saw sales hit a record-breaking $2.04 billion in a single day. It seems like the American consumer has outgrown standing outside in the cold waiting for doors to open. It's much more comfortable to stay home and shop in your pajamas.

Speaking of shopping, consumers should have a more cash to spend this year. We've been talking about the drop in gas prices for months. The Washington Post noted that Americans are saving $630 million every single day with gas currently at four-year lows. If gasoline prices were to stay at current levels it would provide an extra $230 billion to the American consumer and most of that would get spent elsewhere, which would be a major economic boost for the country.

As we look at the last three and a half weeks of 2014 odds are the market will continue to slowly drift higher. Currently the major indices are very overbought and due for a correction but that doesn't mean we can't stay overbought.

~ James