For the eighth straight week last week, the Dow and S&P advanced, setting new record closing highs at 16,090 and 1807 respectively on Wednesday before easing off on the final trading day of the shortened holiday week last Friday and the start of the new month of December on Monday. But in the process, these eight straight weeks of higher prices were the longest such streaks since there were nine higher weeks between November 2003 and January 2004.
What was somewhat ironic is that once again the market declined on the last trading day of the month last Friday for the ninth time out of the 11 months so far in 2013 at the same time that the major averages have been ahead for nine out of the 11 months this year. The S&P is higher this year by 26 percent, its best showing since the 26.62 percent advance in 1998. And despite the poor showing to start the new month on Monday, December has traditionally been the second-best month for U.S. equity returns going back to 1928 when the S&P came into being. The average return for the last month of the year is 1.5 percent, which is more than twice the overall monthly mean advance for all months of 0.6 percent. If stocks do match the historic pattern this month, it would mean that the S&P would end the year at 1832, although obviously there are no guarantees that this will, in fact, happen. On the other hand, it is conceivable that the market could outgain this mean as well, and investors will all be smarter at the close of trading on December 31.
As has been mentioned all along during the course of the third-quarter earnings reporting season that began in early October and which is now at an end, one of the major supporting factors for equities has been that S&P earnings results have consistently come in better than the original consensus which was for a profit gain of 2.2 percent at the start of the reporting period. With third-quarter results now finished, the final earnings advance has been a gain of 5.6 percent, which is one of the reasons for the market’s advance during the reporting period in October and November. This compares to profit advances of 5.4 percent and 4.8 percent respectively for the first and second quarters of 2013.
But with earnings season over and the drama over the Federal Reserve’s tapering intentions on hold until their December 18 announcement, the market has chosen to focus on what it usually does at this particular time of the year — namely, how much consumers spent over the recent four-day period that is traditionally the busiest shopping time of the year. This is vital because consumer spending makes up around 70 percent of G.D.P.
The preliminary results have been mixed so far, as online spending rose by 19 percent to a record $1.5 billion as more people chose to shop from their homes rather than battle long lines at stores. The most visited e-commerce sites in order of money spent were those of Amazon.com, eBay Inc., Wal-Mart, Best Buy and Target. Online retailers were projected to expect 131 million shoppers for what is now known as Cyber Monday, up from 129 million last year. On the other hand, U.S. retailers are coming off the first spending decline on a Black Friday weekend since 2009 as purchases at stores fell by 2.9 percent to $57.4 billion during the four days starting with the November 28 Thanksgiving holiday, according to a survey from the National Retail Federation.
Heavy discounting took a toll on these retailers and this could be an indication of a more difficult season as the average shopper was estimated to have spent $407.02 over the weekend, or 3.9 percent less than during the same weekend last year because of the lower prices that are expected to persist from now until year’s end. It was estimated that 141 million people went shopping at least once during the past weekend, up from 139 million last year, but total spending dropped as mentioned above. These large deals will also hurt profit margins as those “door busters” were what people apparently concentrated on. These figures are extremely important because this weekend is traditionally an early gauge of consumer moods and intentions in a season that generates around 30 percent of sales and almost 40 percent of profits for retailers.
In addition to the retail concerns as just mentioned, the other big event this week will be Friday’s release of the all-important November non-farm payroll report, the final one this year and the last such report before the next Fed meeting two weeks from today. Naturally, investors will once again look for indications on which to base their predictions, as the U.S. central bank has repeatedly said that its current $85 billion-a-month stimulus program remains data-dependent, leading traders to treat soft data as bullish in the old “bad news is good news” syndrome because that guarantees ongoing stimulus. On the other hand, the market has had a tendency to sell off when strong data are released, because that puts the fear of sooner-rather-than- later tapering into investor’s minds. The consensus is for 185,000 jobs to have been created last month, down from 204,000 in October and the unemployment rate to have fallen back to 7.2 percent.
And one can see how stronger data is considered bad news for stocks, as on Monday when the market closed lower after a higher start, experts were quick to point out that the November ISM Manufacturing Index rose to its highest level since April 2011 and September/October construction spending, which were combined due to the partial government shutdown in early October, rose to the highest level since May 2009. And last Wednesday when both the Dow and S&P closed at their highest prices ever, it was reported that October durable goods orders declined by two percent and the November Chicago Purchasing Managers’ Survey fell from October’s level. The reaction to the latter two reports are classic examples of the “bad news is good news” syndrome at work, so are investors to hope for a strong jobs report or one on the weakish side in two days from now?
Stay tuned as the jobs report will be discussed in detail in next week’s column.
Donald Selkin is the Chief Market Strategist at National Securities in New York, a veteran in the securities industry for 36 years who is widely quoted in the financial media.
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