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Weekly Vantage Point | 11.23.15

Best Week of the Year for the S&P 500

November 23, 2015 – U.S. stocks broadly recovered last week, with the S&P 500 posting its best weekly gain of the year, as Federal Reserve policymakers said the economy is strong enough to withstand the first hike in interest rates since 2006. With a rate increase coming as soon as December, the Fed's Federal Open Market Committee (FOMC) policy meeting minutes also revealed that further rate increases would be shallow and more gradual than conventionally believed. As U.S. interest-rate concerns faded, investor sentiment strengthened after Europe's central bank president, Mario Draghi, said the ECB will aggressively do whatever is needed to boost inflation across the euro-region. Impressively, investors also overcame anxieties stemming from the Islamic State terrorist attacks in Paris. The CBOE VIX Volatility Index, a measure of investor fear and anxiety, fell 25% last week, its largest drop since July.

Emerging market equities also rallied last week as the MSCI Emerging Markets Index advanced 2.73% over the past five sessions, its largest gain in six weeks. Turning to key domestic economic data last week, industrial production fell for a third month in October, as persistent U.S. dollar strength continued to hamper exports of American manufactured goods. Housing starts steeply declined last month, primarily due to a pullback in multi-family homes that had surged in September. On Thursday, the Conference Board said its index of leading economic indicators, which had been slightly negative to flat since July, jumped beyond economists' consensus forecast, portending further strength ahead for the economy.

For the week, the S&P 500 surged 3.34%, the Dow Jones Industrial Average (DJIA) advanced 3.36%, while the NASDAQ Composite jumped 3.65%. All ten major sectors advanced during the week, with Consumer Discretionary (+4.55%), Technology (+4.37%) and Healthcare (+2.83%) rising the most. WTI crude oil futures capped a third weekly decline, as U.S. inventory levels increased for an eighth week, now more than 100 million barrels above the seasonal five-year average. Gold futures are down for a fifth week, the longest string of declines since July. Treasuries rose last week, with the yield on 10-year Treasury notes slipping 0.4 of a basis point lower to 2.267%, while 30-year bonds fell 3.2 basis points to 3.020%.

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Week’s Economic Calendar

Monday, November 23: Chicago Fed National Activity, Markit flash PMI Mfg., Existing Home Sales;

Tuesday, November 24: 3Q GDP second estimate, S&P/Case-Shiller Home Prices, Consumer Confidence;

Wednesday, November 25: Durable Goods Orders, Weekly Jobless Claims, Personal Income and Outlays, New Home Sales, and Consumer Sentiment;

Thursday, November 26: Thanksgiving Day Holiday, All Markets Closed;

Friday, November 27: No major releases, Early Market Closes: Stocks: 1 pm ET, Bonds: 2 pm ET. .

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 3.36% 0.91% 4.90% 0.00% 0.59%
S&P 500 3.34% 0.67% 3.21% 3.40% 3.94%
NASDAQ 3.65% 1.18% 4.99% 8.94% 9.84%
Russell 3000 3.19% 0.64% 2.45% 2.67% 3.42%
MSCI EAFE 2.52% -0.80% -1.74% 1.31% -0.86%
MSCI Emerging Markets 2.73% -0.47% 2.02% -9.88% -12.75%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.15% -0.46% -0.30% 0.68% 1.48%
Barclays Municipal 0.50% 0.14% 1.19% 2.31% 3.15%
Barclays US Corp High Yield -0.51% -2.25% -2.07% -2.03% -3.07%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -1.22% -6.86% -8.74% -21.93% -30.94%
S&P GSCI Crude Oil -0.24% -10.07% 1.40% -21.34% -44.78%
S&P GSCI Gold -0.48% -5.70% -6.67% -9.10% -9.67%
Source: MorningStar
Chart of the Week: U.S. Manufacturing Still Having a Tough Time
View larger image »

Source: Federal Reserve.

In October, manufacturing output increased 0.4% on a seasonally-adjusted monthly rate following two monthly declines. This solid gain raises the issue of whether factory output is finally breaking out of the doldrums. As the chart shows above, while industrial production (IP) posted a strong gain in October, this followed two monthly declines and the 3-month run rate for factory IP is an anemic 0.6% with weakness broad-based across industries. And this slow growth probably remains more indicative of the current trend. This view partly reflects results of the first three regional manufacturing surveys for November. While the New York, Philadelphia, and Kansas City Fed surveys each improved a little in November, the slightly higher readings for all three were still very weak as measured by their derived composites (44.9, 48.9, and 50.3, respectively). This subdued view of near-term prospects for manufacturing also reflects the headwinds still facing the industrial sector. The strong dollar and generally weak foreign growth have been stifling exports.

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The Barclays U.S. Aggregate bond Index is an unmanaged index composed of Barclays Credit government bond index, mortgage backed securities index, and asset backed securities index and is generally representative of the US Bond market.

The Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt.

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CRB Index: A pricing index that measures changes in the price of 22 commodities that are believed to be among the first to react to changes in economic conditions.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

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The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future.

The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI and provides investors with a publicly available benchmark for investment performance in the crude oil market.

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