The S&P 500 index is flirting with gains for the year.

It is too bad we can't have Christmas every week. Stocks soared during the holiday-shortened week with big gains Monday-through-Wednesday. Thursday's session was relatively quiet with the market's intraday gains reversing to settle virtually unchanged on the session.

The major U.S. indices all gained +2.5% or more for the week. Many of the industry-specific indices rallied +3% or more. The transportation average gained +3.5%. Semiconductors surged +3.1%. Banks were up +3.0%. Biotech stocks rallied +3.4%. Housing stocks sprinted higher with a +3.7% gain. Even oil stocks rallied. Crude oil finally produced an oversold bounce with WTI oil tagging new lows on Monday intraday and then reversing higher to close the week with +6.4% gain. Oil-related stocks rallied +4.7% while oil service stocks surged +6.5% by Thursday's closing bell. Crude oil closed near $37.50 a barrel.

Final Week For Retailers

It has been a disappointing holiday shopping season for brick-and-mortar retailers. The unseasonably warm weather for a big chunk of the country severely crimped apparel sales. More than 20 states saw new record high temperatures for this time of year.

There was some hope that "super Saturday" might save the season. This is the final Saturday before Christmas, which has grown into one of the biggest shopping days of the year, rivaling Black Friday. Retailers, both online and off, did see about +4% improvement from a year ago on Saturday, according to one retail research firm. Unfortunately that wasn't enough. Overall in-store and online sales from early November through December 22nd looks on track to rise +3.1%. That's below estimates and down from +4.1% a year ago.

Retail profits likely took a hit on what they did sell. It was an extremely competitive year. According to Market Track, who has been analyzing the advertising and promotional landscape for more than 30 years, retailers were offering discounts in the 20% to 50% off range. Advertising for post-Christmas sales offered 60% to 75% off sales. According to analytics firm Retailnext, sales for big chain stores like Best Buy, Target, and Wal-mart dropped -6.7% the weekend before Christmas as store traffic plunged -10%. The winner behind these declines is Amazon.com. Online sales continue to grow.

Economic Data

The third estimate for U.S. Q3 GDP growth was revised down from +2.1% to +2.0%. Meanwhile the final reading for December's University of Michigan Consumer Sentiment survey improved from 91.8 to 92.6. That's up from 91.3 in November.

Exiting home sales did not have a good month. October's sales number was revised down from 5.36 million to a seasonally adjusted annual rate of 5.32 million. The November reading plunged -10.4% to a rate of 4.76 million. This is the first time since early 2014 that existing home sales have had two back to back months of declines. New home sales fared better. The seasonally adjusted annual rate for October was revised down from 495,000 to 470,000. Fortunately November's reading was up +4.3% to 490,000.

The personal income and spending numbers showed some improvement. November's reading for both rose +0.3% each. The monthly durable goods orders were unchanged in November after October reading was adjusted lower to +2.9%. Durable goods excluding the volatile transportation component fell -0.1%.

The weekly initial jobless claims continue to sink. The latest number showed a drop from 272,000 to 267,000. This is the 42nd week in a row they have been under 300,000. That hasn't happened since 1973. The non-seasonally adjusted numbers put weekly claims at lows not seen since 1969.

Bundle it altogether and we get a recipe for slower growth in Q4, according to the Atlanta Federal Reserve. They publish a weekly GDPNow estimate. Last week their GDPNow forecast for Q4 growth was revised down from +1.9% the prior week to +1.3% as of December 23rd.

Chart of the Atlanta Fed's GDPNow estimate

Overseas Economic Data

It was a very quiet week for economic data overseas. The United Kingdom announced that their Q3 GDP estimate came in at +2.1% versus a year ago. That was slightly below estimates. It was up +0.4% versus Q3. France also reported their Q3 GDP estimate, which was in-line with expectations at +0.3%. Across the Pacific the news out of China was disappointing with industrial profits falling. Every month China provides an estimate on profits earned by Chinese industrial companies. In October these profits fell -4.6% from a year ago. November this improved to -1.4%. The first 11 months of 2015 show this industry down -1.9% versus 2014.




Major Indices:

The big cap S&P 500 index surged +2.76% in the last three and a half trading days following a rough Thursday-Friday plunge the prior week. Year to date the S&P 500 is up +0.1% for the year. The index essentially closed right on technical resistance at its 50-dma and 200-dma, which have converged near the 2,060-2,065 area.

Technically the overall trend is somewhat bearish with a pattern of lower highs and lower lows. If you're a glass-half full chart reader you could cross your fingers and hope that the S&P 500 is actually building a big bull-flag consolidation pattern over the last several weeks.

The 2,076-2,080 zone is short-term resistance while the 2,000 area is likely short-term support.

Daily chart of the S&P 500 index:

The NASDAQ composite index bounced off its trend line of higher lows and rallied +2.55% for the week. This boosted the index's 2015 gain to +6.6%.

This index also has a short-term trend of lower highs but I would focus on round-number resistance at 5,100 and the recent highs near 5,165-5,170 as overhead resistance. The trend line of support is nearing the 5,000 level (see chart). Below that the 4,900 area is still support (for now).

chart of the NASDAQ Composite index:

December is normally a very strong month for small cap stocks. It's obviously not shaping up to be that way. The Russell 2000 small cap index did gain +3.0% for the week. It is still down -3.6% for the month of December and off -4.1% for the year. Last week's bounce tagged potential short-term resistance at 1,160 and started to reverse lower on Thursday.

If the rally continues then 1,180 is the next hurdle. If the $RUT retreats then 1,140, 1,120, and 1,100 are the levels to watch for support.

chart of the Russell 2000 index



Economic Data & Event Calendar

Stocks face another holiday-shortened week. The U.S. markets will be closed on Friday, January 1st, for New Year's Day. Most European markets will close early on December 31st for New Year's Eve. The U.S. bond market also closes early.

- Monday, December 28 -
Dallas Fed manufacturing survey
Japan's industrial output
Japan retail sales

- Tuesday, December 29 -
Case-Shiller 20-city home price index
Consumer Confidence (survey)

- Wednesday, December 30 -
Pending home sales

- Thursday, December 31 -
Chicago PMI data

- Friday, January 01 -

New Year's Day (markets closed)

Additional dates to be aware of:

Jan 18th - Martin Luther king, Jr. Day (markets closed)
Jan 27th - FOMC policy update
Feb 15th - Presidents Day (markets closed)
Mar 16th - FOMC meeting, updated forecasts
Mar 16th - Fed Chairman Yellen's press conference
Mar 25th - Good Friday (markets closed)

Looking Ahead:

The stock market's recent bounce didn't do much for investor confidence. The weekly AAII survey only showed a +2.5% jump in bullish sentiment to 26.4%. Bearish sentiment did fall -8% to 31.5% while neutral sentiment rose +5.4% to 42.1%. According to the AAII, the long-term average for bullish sentiment is 38.7%. The long-term average for neutral is 31% and for bears it is normally 30.2%.

Market Outlook

History says that December is the best month of the year for stocks. Obviously that's not a guarantee and this year is proving to be an exception. The S&P 500 index is down -0.9% for the month while the Russell 2000 is down -3.6% for the month. The good news is that we still have four trading days left for the year. Once again history would suggest the trend should be higher.

The normal Santa Claus rally starts on December 24th and runs through the first two trading days of January. Over the last 45 years the S&P 500 has typically rallied +1.4% over this time frame. With the yearend fast approaching we are seeing more Wall Street forecasters offer their outlook for 2016. Thus far the 2016 bulls outnumber the bears. A recent Wall Street Journal article noted that Birinyi Associates polled 15 strategists among the major Wall Street firms. Their average 2016 yearend forecast is 2,215. That's a +7.5% rally from current levels.

We need to see the S&P 500 close above 2,059 on Thursday to post a gain for the year. Let's hope last week's rally sees some follow through higher.

~ James