Thursday, December 24, 2015
Stocks are indicated to start today’s abbreviated trading session ahead of Christmas essentially flat, which would follow three days of back-to-back gains this week. This week’s gains helped the major indexes recoup earlier losses and potentially end the year modestly in positive territory. The S&P 500 index entered positive territory for the year following Wednesday’s gains, though the Dow is still down for the year.
The major indexes were all over the place this year – up, down, and sideways – but don’t really have a lot to show for all that activity. A combination of Fed anxieties, global growth worries, the commodities down cycle and lack of earnings power weighed on stocks this year. With just a few trading sessions left in 2015 and most of these issues still with us, we will most likely be dealing with these same issues in the New Year as well.
Granted, we now have some clarity on the Fed issue following lift-off. But that is of no help in answering the question of how many rate hikes in 2016 – market seems to be pricing in 2 hikes despite the Fed’s target of 4. This is a big deal for the market as it will determine whether longer interest rates start moving up, stay around current levels or even move down. As we all know, the Fed has traditionally controlled only short-term interest rates, with the longer end of the yield curve largely market driven. But we live in a new monetary world where the Fed controls trillions of dollars worth of treasury bonds on its balance sheet, which gives it power over the longer end of the yield curve as well.
Looked at this way, the New Year may not be new after all. But we can worry about the New Year a few days down the road. For now, let’s not read too much into the day-to-day movement in stocks for now and focus instead on our families and enjoy Christmas.
Merry Christmas to all.
Sheraz Mian
Director of Research
Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trendsand Earnings Previewreports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.
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