The President of the United States is in Asia this week and the two largest economies in that region are sending a clear message – STOP THE MADNESS. Stop pandering and raise interest rates now!
If nothing else, this week the news flow out of Asia will provide some great GLOBAL MACRO theatre.
In very quiet trading the S&P 500 finished higher by 0.6% on Friday. For the week the S&P 500 closed up 2.3%. The market was supported by renewed dollar weakness, although the sectors that benefitted the most from the GLOBAL RECOVERY trade underperformed. The dollar sank by 0.5% and the VIX declined by 3.6% on the day.
The biggest area of concern seemed to be the MACRO calendar, as consumer sentiment fell for a second straight month in November. The University of Michigan’s Consumer Sentiment Index fell to 66 in the November from 70.6 in October, versus consensus expectations of 71. Not surprisingly, expectations for personal finances and employment also deteriorated in November, as did the indexes measuring buying conditions for large household goods, houses and vehicles.
The Financials (XLF) sector was the worst performer declining 0.2% on Friday; the XLF was the only sector down on the day. The banking finished lower for a second straight session, with the large-cap names such as Wells Fargo and JP Morgan were among the laggards. It's notable that both the Financial and Materials (XLB) underperformed on Friday, as they are the two sectors of the market that have provided significant upside leadership since the March lows.
The three best performing sectors were Consumer Discretionary (XLY), Technology (XLK) and Utilities (XLU). Despite the disappointing consumer sentiment data, the consumer discretionary sector was the best performer today as Retail was a bright spot. Earnings helped lift some of the name and both DG and RUE rallied following their respective IPOs.
Today, the set up for the S&P 500 is: TRADE (1,074) and TREND is positive (1,039). The Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 7 of 9 sectors are positive from the TRADE duration. Two of the sectors that benefit the most from the lower dollar – Financials and Materials - are broken on the TRADE duration.
The Research Edge Quant models have 2% upside and 2% downside in the S&P 500. At the time of writing the major market futures are poised to open up small to the upside.
The Research Edge MACRO Team