Economic Data, Earnings and Congress in Session Mark Last Week of Month

Today kicks off a busy week on the economic data front amid a slowdown in the earnings parade and Congress’s return to work. This week also will see the end of one month and the beginning of another, which has sometimes led to the so-called “turn-of-the-month effect.”

Also referred to as TOM, the turn-of-the-month effect is a market anomaly in which stocks tend to rise on the last trading day of the month and the first three trading days of the next month. This isn’t a trading strategy, just an unusual occurrence and a reminder that past performance is not indicative of future results. Historically speaking, December and January tend to be strong ones for stock market performance, and have often been referred to as the “Santa Claus rally.”

The government releases October’s new-home sales today after two straight months of high double-digit gains in new single-family sales. Despite a bit of volatility in 2017, September marked the fifth month this year that new homes were selling at an annual pace of more than 600,000 units. In 2015 and 2016, new homes sold at an annual pace of 501,000 and 561,000 units, respectively.

Also of note this week on the economic calendar are government reports on personal income and spending, and the Federal Reserve’s seemingly favorite inflation metric, the personal consumption expenditures data. All three are out Thursday.

Friday’s shortened session was another record-setting one for the S&P 500 and the Nasdaq Composite, though the moves were small. The Dow Jones Industrials also inched up but didn’t make the record books. But all three benchmarks registered their first weekly advances in three weeks. The Russell 2000, which tracks small companies, also finished at a fresh crest.

Retailers were in focus Black Friday, the once-traditional kick off of the holiday shopping season. Macy’s Inc M added 2% and Gap Inc GPS was higher by 1.6% while Kohl’s Corporation KSS put on 1% and Wal-Mart Stores Inc WMT 0.22%. Amazon.com, Inc AMZN shares also expanded, by 2.6%. Target Corporation TGT missed the improvement party, falling 2.8%.

They might be in the spotlight again today, Cyber Monday. That’s a holiday online sales day created by the National Retail Federation as a counterpoint to Black Friday’s in-store shopping frenzy. Adobe Analytics, the website data trackers, has said this could be the biggest online sales day in history, with a forecast of $6.6 billion in sales, 16.5% higher than last year. (See below.)

Shares of Time Inc TIME were moving higher in the early going. Late yesterday, Meredith Corporation MDP said it bought the media group in a deal valued at $2.8 billion. The pact is backed by $650 million in a preferred equity commitment from Koch Equity Development, the private equity arm of Charles and David Koch, according to MDP.

Oil prices kept moving higher last week, ending Friday’s session at a 2½-year peak ahead of this week’s key meeting of the Organization of Petroleum Exporting Countries (OPEC), along with Russia and several other major producers. The meeting, scheduled for Thursday in Vienna, is expected to focus on whether to extend oil production cuts that are scheduled to expire at the end of March, according to some market analysts.

We’re headed into a time of year when crude stockpiles tend to start rising, so keep an eye on those weekly supply reports over the next few weeks to see if that starts to happen. Meanwhile, U.S. production keeps moving higher. West Texas Intermediate oil, the U.S. benchmark, climbed by 1.6% to $58.95 Friday after hitting a high of $59.05, while Brent, the global benchmark, was up 0.5% to $63.86 a barrel. In the early going, prices on both were flat to down moderately.

FIGURE 1: CRUDE ON THE RISE. Crude oil prices touched a 2½-year peak Friday. Since bottoming in mid June, prices have surged better than 40%. Data sources: CME Group, Standard & Poor’s. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

ICYMI

It’s “likely” that the Federal Reserve could raise interest rates in December, based on the minutes of its Oct. 31 to Nov. 1 meeting released last week. In them, Fed policy rate setters agreed that the economy was moving full steam ahead with above-trend growth and a labor market that is strong. But they still were stumped over the mystery of low inflation. Why is this happening and does it mean it could lead to a decline in longer-term inflation expectations? Or has it already happened? Those were among the worries members discussed, according to the minutes. Even so, most participants believe cyclical pressures stemming from a tightening labor market remain “likely” to lead to higher inflation over the “medium term,” the minutes said.

There’s that “likely” term again. The futures market was already on it; the CME’s FedWatch tool has the probability of a quarter-point interest rate hike to 1.25% to 1.5% sitting this morning at 92.8%, above the 91.5% posted on Friday. The next Fed confab is scheduled for Dec. 12-13 with a press conference on the agenda after the last meeting.

The Numbers

Some are in for the shopping extravaganza that unofficially kicked off the holiday spending spree: Thanksgiving and Black Friday online sales clocked a record high $7.9 billion, much of which was purchased from shoppers’ mobile devices, according to Adobe. Results were not yet available for bricks-and-mortar stores, but Reuters reported that there were “anecdotal signs of muted activity — fewer cars in mall parking lots, shoppers leaving stores without purchases in hand.”

ShopperTrak, the retail research firm, said store traffic was not as bad as some industry watchers forecasts, falling only 1% on Black Friday. “The fact that shopper visits remained intact on Black Friday illustrates that physical retail is still highly relevant and when done right, it is profitable,” Brian Field, ShopperTrak's senior director of advisory services, told Reuters.

Crunch Time for Congress

There are only four weeks left before Christmas and Congress is expected to resume this week with a packed agenda and looming deadlines, some self-imposed. The core items include tax cuts, a potential government shutdown and lots of leftover spending bills that “could unravel just as easily advance” in today’s political climate, according to the Associated Press.

President Trump promised a tax bill would be passed before Christmas and a temporary spending bill that has kept the government open for business is slated to expire Dec. 8. Remember that much, but not all, of what happens in Washington, D.C., is just noise and is not likely to impact stocks.

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