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Weekly Vantage Point | 1.4.16

No Santa Claus Rally in December

January 04, 2016 – The S&P 500 fell 0.94% last Thursday, closing near session lows and capping the month with a 1.58% loss, its worst December decline since 2002. Energy shares fell 9.87% last month to cap their worst year since 2008 (-21.12%) as the global oil glut pushed crude oil futures down 13.78% last month, ending the year with a -30.47% loss. Coupled with 28.22% drop in 2014, crude oil experienced its largest two-year slump on record. The latest oil inventory report from the Energy Information Administration (EIA) showed the nation's oil supplies rose to a record 1.18 billion barrels in October. Meanwhile, the U.S. oil and gas rig count declined by 2 last week to end the year at 698, down from 1,811 a year ago (-61.46%), according to Baker Hughes.

New first time jobless claims jumped by 20,000 in the week ending December 26, a report released by the Labor Department showed on Thursday. Despite the surge, the less volatile four-week average increased to 277,000, which is nearly the same as the 2015 year average. Other data released the last trading day of the year showed the Chicago-area PMI manufacturing conditions index fell five points to 42.9 in December, the lowest reading since July 2009. Additional economic data last week showed home prices in all 20 cities, tracked by the Case-Shiller Home Price Index, posted gains for a second straight month. Pending home sales fell slightly in November, its third decline in four months, as buyers wrestle rising home prices and reduced inventory of used homes available for sale, according to the National Association of Realtors.

For the week, the S&P 500 fell 0.80%, closing below its 200-day moving average, the Dow Jones Industrial Average lost 0.72% and the NASDAQ Composite also declined 0.80%. All ten major sector groups ended in negative territory, with Energy (-2.23%), Materials (-1.51%) and Telecom (-0.95%) down the most. Consumer Discretionary (-0.37%) fell the least. Gold futures fell 1.34% on the week, while West Texas Intermediate (WTI) crude oil declined 2.78% to end the year at $37.04/barrel. Treasury prices extended declines last week, with the yield on benchmark 10-year Treasury notes rising 2.8 basis points to finish at 2.270%.

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Week’s Economic Calendar

Monday, January 4: ISM Manufacturing PMI, Markit U.S. Manufacturing PMI;

Tuesday, January 5: ISM New York City Business Conditions;

Wednesday, January 6: ADP Private Jobs, U.S. Trade Deficit, Markit U.S. Services PMI; ISM Non-Mfg PMI, Durable Goods Orders, FOMC Meeting Minutes;

Thursday, January 7: Weekly Jobless Claims, Markets Close Early;

Friday, January 8: December Nonfarm Payrolls, Wholesale Inventories/Sales.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -0.72% na 7.09% na -2.23%
S&P 500 -0.80% na 6.80% na 1.38%
NASDAQ -0.80% na 8.53% na 6.97%
Russell 3000 -0.86% na 6.11% na 0.48%
MSCI EAFE -0.16% na 4.04% na -0.82%
MSCI Emerging Markets -1.09% na -0.03% na -14.92%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.03% na -0.63% na 0.55%
Barclays Municipal 0.08% na 1.48% na 3.30%
Barclays US Corp High Yield 0.40% na -1.86% na -4.47%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 0.10% na -9.81% na -24.67%
S&P GSCI Crude Oil -2.78% na -17.21% na -30.48%
S&P GSCI Gold -1.46% na -4.80% na -10.47%
Source: MorningStar
Chart of the Week: The JPM Global Manufacturing PMI
View larger image »

Does a Good Job Tracking Activity Growth But Has an Exception: The United States

Having partnered with Markit Economics, the JPMorgan Global Manufacturing PMI index turned 18 years old and we reviewed its use as a business cycle indicator, highlighting its key properties and assessing its accuracy. The PMI has a good track record, but models that rely solely on the PMI survey to gauge growth in manufacturing output or gross domestic product (GDP) have frustratingly large standard errors. Recently, the global PMI (dark blue line) has persistently over-estimated global growth relative to actual output (orange line). With respect to changes in the levels of the global PMI, on average, a 1 point increase in the global manufacturing output PMI has been associated with a 0.8 point increase in manufacturing output growth. A closer look at Figure 1 reveals that the global manufacturing output PMI developed a notable forecast error during 2014 and first-half of 2015 in which it consistently over-predicted the growth of global industrial production (IP). The relationship between the output PMIs and economic growth varies widely on a national basis. But generally, the PMI surveys provide an important guide to activity. The prominent exception is the United States. Neither Markit's PMI nor ISM's manufacturing survey do a good job of tracking the growth of U.S. manufacturing output.

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