Thursday wasn’t much of a day for the stock market, with major indices chopping around ahead of the jobs report. Something to keep in mind for the next jobs report in early January is that the day before is getting to be a little like the day before a Fed meeting, with few people wanting to get too long or short ahead of the news. The SPX started Friday just about 1% below its all-time high set last month. Bonds, gold, and volatility barely moved on Thursday, and all seem relatively range-bound with the exception of that sharp and short-lived bounce in the Cboe Volatility Index (VIX) earlier this week.
On the data side, factory orders for October came in a bit better than analysts had expected and the September data were revised slightly upward, which isn’t a bad thing. University of Michigan sentiment is ahead later this morning.
Crude was also pretty steady Thursday despite headlines about OPEC agreeing to make deeper-than-expected output cuts of 500,000 barrels a day above and beyond the 1.2 million barrels a day already being held back from production. That news didn’t appear to help the Energy sector much, as it had by far the worst day of any S&P 500 sector and remains the weakest sector performer this year.
One reason Energy stocks and crude didn’t get a boost could be an idea that OPEC’s extra production cut might not make up for the anticipated output gains from the U.S., Norway, and Brazil seen coming online in 2020.
Also, industry data suggest OPEC is already producing about 500,000 barrels a day less than the previous agreement allowed, meaning any addition to the output chop would be an addition in name only and perhaps have limited market impact, trade media reported. The new OPEC deal expires at the end of March, around the time when new supplies from non-OPEC producers could be hitting the market.
That might put OPEC under increased pressure to cut further or face a plunge in crude prices, though forecasting where crude might go nearly four months ahead of time doesn’t typically pan out.
CHART OF THE DAY: TRANSPORTS OUTRUN: The transport sector ($DJT-candlestick), sometimes seen as a barometer for the broader economy, hasn’t been able to keep up with the Dow Jones Industrial Average ($DJT-purple line) over the last three months. Data Source: S&P Dow Jones Indices. Data Source: CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Looking Forward to Monday? It’s just 359 days until Black Friday (remember 2020 is a leap year with one extra day), but here’s something to consider filing away for next time. Black Friday once was the biggest shopping day of the year, but it looks like Cyber Monday is “upstaging” its more traditional cousin, the Chicago Tribune reported this week. For the first time, the majority of U.S. consumers (54%) said ahead of Black Friday that they’d do most of their holiday shopping online, according to consulting giant PwC. This might actually be good for retailers, who typically put their Black Friday plans into place long before the actual calendar day.
With online shopping, experts told the Tribune, retailers can be more nimble, watching real-time reactions from customers and adjusting accordingly. They can quickly change prices or introduce flash sales hour-by-hour, depending on how consumers are shopping. Some companies even set up “war rooms” where they can monitor and react to sales data as it comes in. As for those Black Friday car trips to the big box? They’re starting to sound a bit old fashioned to some. An estimated 36% of consumers planned to shop the day after Thanksgiving this year, down from 51% in 2016, according to PwC.
Optimist’s Club: While the focus later this morning could turn to monthly consumer sentiment data, there’s another type of sentiment that sometimes gets overlooked: The investor type. Taking in the atmosphere among investors at the moment, it doesn’t feel like the three-day skid from Friday through Tuesday really did much damage to the optimism that’s prevailed on Wall Street in recent weeks.
What might have happened is a little end of month profit-taking and consolidation around recent gains, which arguably could put the market in better shape to build on the rally now that some of the weak longs have perhaps been flushed out. The other side of the narrative argues that the 10% rally over the last two months meant Santa Claus came early this year, leaving less chance for a “Santa Claus” rally at its traditional time late in December.
Tail Wagging the Dog? In recent history, the U.S. dollar has typically had some influence on the crude oil market. Dollar strength often weighs on crude because crude is priced in U.S. dollars and a strong dollar makes crude more expensive for overseas buyers, sometimes depressing demand. This time around, however, a rally in crude appears to be pressing the dollar down. Crude climbed from recent lows of around $55 a barrel for U.S. product to above $58 by Thursday as investors anticipated a sharper production cutback from OPEC than originally expected.
The hike in crude prices over the last few days corresponds with a slight period of weakness in the dollar index, which fell from highs above 98 last week down to around 97.40 by Thursday. It’s easy to confuse correlation with causation and it’s often tough to see which market is influencing the other, but in this case, it does appear that stronger crude prices might be pushing the dollar lower.
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