Hello volatility, well, a little. The “Trump Bump” may be quickly fading, and we welcome the opportunity for a little volatility into the market. With the onslaught of earnings this week we could see added vol this week.
Yesterday I sold some puts on my short Nasdaq, covered a few winning trades, and placed a Mastercard and Under Armour earnings trade.
Mastercard was a nice winner and Under Armour was a complete bust. Down around 25%, this was well outside the expected move, and now I’ll be playing defense until I can hopefully scratch the trade or make it a small loss. This is where the work begins when you have big moves like that.
The enduring equity market finally took a respite last week as the S&P 500 declined 1% for its first weekly reversal since before the US Presidential election. The Benchmark eventually closed at $2191 while staying fixed in a fairly tight range. Energy, financial, and basic material sectors all gained over the progression of the last five sessions. Technology and healthcare struggled to keep pace as the Nasdaq extended its recent underperformance giving up -2.7% during the same period. The Dow Jones Industrial (DJIA) components were able to eke out a fractional +0.1% gain for its fourth consecutive weekly advance sustaining a 10% return so far in 2016. The small cap Russell 2000 index saw its only daily advance come on Friday after contracting for the four straight sessions prior following a red-hot November. Friday’s monthly U.S. unemployment report touted an encouraging nine-year low of only 4.6% with another 178,000 jobs created during the month of November. One aspect mounting some concerns however was the job force participation rate withering to only 62.7% amongst the ages of 25-64 with hourly income also edging .1% lower for the first time this year. Experts still predict that the overall vitality of the labor market is sufficient to essentially assume a long awaited rate hike in the upcoming Federal Reserve meeting.
Investors seem apprehensive around the implications surrounding an Italian referendum vote as an eventual exit from the Eurozone could create Brexit like reactions. The CBOE Volatility Index closed Friday at the higher end of the range above $14 but will be put to the test early on with any major announcements coming oversees. The U.S. 10 year treasury dropped 5 basis points on Friday to settle at 2.4% after Thursday’s high watermark not seen since June of 2015. Gold Futures (/GC) may see more emphasis to round out the year depending on repercussions from the geopolitical development as exit polls are showing the Prime Minister’s future may very well be in jeopardy. Oil bulls applauded last week’s impressive run compliments of OPEC production cuts to put crude (/CL) back in reach of year-highs obtained in mid-October and above $51 a barrel sending the entire sector skyrocketing last week.
The upcoming week is gearing up to be relatively light with only a trickle of economic data expected to leave ample room for outside variables to shape market sentiment. Monday will showcase PMI numbers along with the TD Ameritrade monthly IMX to better gauge retail investors’ recent risk appetite towards equities. Thursday will host another weekly unemployment snapshot before Friday’s final 2016 consumer sentiment report comes out during one of the busiest shopping weeks of the entire year with encouraging data early on. Earnings will have little impact on the markets over the near-term with only the notable name of Costco scheduled to release mid-week.
Major Earnings for the Upcoming Week:
A.M. – N/A
A.M.– AZO, BMO, CONN, MIK,TOL
A.M. – VRA
P.M. – CASY,COST, HRB, LULU, VRNT
A.M. –CIEN, HOV
P.M. –AVGO, BRCM, RH
A.M.– LEE, MTN
P.M. – N/A
Economic Releases (12/5– 12/9):
7:30 am CT – Fed’s Dudley Speaks
7:30 am CT – Final Services PMI
9:00 am CT –ISM Non-Manufacturing PMI
9:00 am CT – Labor Market Conditions
11:30 am CT –TD Ameritrade IMX Survey
1:00 pm CT – Fed’s Bullard Speaks