Stock markets wobbled early Monday morning but otherwise showed little reaction to the Paris terrorist attacks. In fact, world equity markets rallied for the rest of the week. The US led the way with the S&P 500 closing at 2,089, up 3.3% on the week. The French CAC 40 index gained 2.2% in euros (1.5% in dollars).
The FOMC minutes from the Federal Reserve’s meeting last month were out Wednesday. Members anticipated it “could well be” time to raise short-term interest rates at the December 16 policy meeting (a press conference will follow). The fed funds futures market has the odds at 72%.
Ten year Treasuries traded in a narrow range and closed Friday at 2.26% while the two year note gained 8 basis points to yield 0.92%.
Meanwhile, Germany sold a two-year bond that yields -0.38%, and Portugal has also sold bonds at a negative yield. The markets expect the ECB to cut its deposit rate to -0.4% in December. Divergent monetary policies are driving the dollar higher on FX markets.
Oil continues to flirt with an intra year low of $40 on oversupply worries. The WSJ reports “US oil inventories are near levels not seen for this time of year in at least 80 years.”
The holidays are a critical period for many retailers. The last two months of the year can account for 30% of annual sales. Wells Fargo forecasts that holiday sales will be up 3.4% over last year’s levels, slightly below the National Retail Federation’s 3.7% expected increase. They note real non-store retail sales (on-line retailers) are expanding close to 10% YoY versus around 7% last year.
While analysts expect a good holiday season, several retailers like Macy’s, Urban Outfitters and Nordstrom have all reported sluggish sales so far despite the decent economic backdrop. (The FT reports that clothing retailers are fighting the long term decline in spending devoted to apparel, which has fallen from 5.4% in 1990 to 3.3% last year.)
ISI Strategies: The headline CPI rose +0.2% in October as did the core CPI. The YoY gain for core CPI inflation stayed at 1.9%, while the headline number was 0.1% YoY. Gasoline prices edged up +0.4% in October after tumbling 9.0% in September. Airline fares and medical care services posted the biggest upside surprises to the CPI.
In light of the recent two year budget deal in the US, ISI took a look at fiscal policy in the major industrialized countries. They note: Fiscal policy stimulus is not a “game changer” but on the margin will add to global growth in 2016.
Care for a BITE? That’s the ticker for the first and only ETF dedicated exclusively to Restaurants. The companies in BITE represent over 50 of the world’s most recognizable and iconic brands which operate a wide variety of restaurant formats including Starbucks, Chipotle, Buffalo Wild Wings, and Ruth’s Chris, among others. It’s a gimmick and completely unnecessary for building a diversified portfolio. Don’t bother. Besides, it will probably give you indigestion.
The EYE is going to take next week off. I’ll be down in Austin Texas, but on Tuesday I’ll head over to San Antonio and present to the CFA Society there on “The Investment Wisdom of John Maynard Keynes.”
Have a wonderful Thanksgiving everyone!
I’ll leave you with Caroline Baum’s short article Pilgrims’ Progress, or the Story of Thanksgiving. It’s just great.
Jeff Pantages, CFA®
Chief Investment Officer