Recap: Week Ending November 20, 2015
Equities across the globe climbed higher putting major indexes back on their upward path from the lows of late September. Like in past week, the NASDAQ 100 index led the way higher, closing the week up 4.09%. On the flip side, the S&P 500 was the laggard in the United States, only closing higher by 3.27% compared to the Dow Jones who was able to close up 3.35% last week. The Toronto Stock Exchange Composite Index, or TSX, did not fair as well as its US counterparts, only closing higher by 2.74%. The push higher in American equities comes as more believe that the US Federal Reserve will increase their target rate at their next meeting in the middle of December. Tuesday saw the release of the Consumer Price Index on a year over year basis. As the Fed is highly concerned about the rate of inflation, this figure was eagerly anticipated by the market. The number came in much better than expected at 0.2% vs. a previous reading of 0.0% and the consensus among economists of 0.1%. Equities showed little reaction to this figure, with the Dow Jones closing Tuesday flat. With this being said, markets rallied towards the close of the week. In the past, the market has taken a rise in rates as a negative shock. However, it appears that such a view has changed and that a rise in rates signals the economy is healthy. From the reaction in the equity space, it appears that the market is comfortable with a rate hike. However, the reaction in fixed income space was much different. Last week the US 10 Year Treasury Note price closed higher by 0.10%, settling Friday at $126.13. Currently, the 10 Year is yielding 2.262%. As the price of bonds typically moves in the opposite direction as interest rates, it appears that the fixed income space does not anticipate a rate hike from the Fed at the upcoming meeting. It must be noted that the price of the 10 Year has been trending lower since the middle of October and a rate hike may already be priced into the market. Keeping this in mind, it will be important to watch the economic data between now and December 16 when the next interest rate decision will be announced to see if the current path of positive data continues.
Last week the TSX was able to trade higher after seeing trade below its 200 week moving average two weeks ago. The move higher last week comes as the index bounces off of lows that were established towards the end of September. The push up was without a doubt helped by the climb higher in the price of NYMEX crude which had fallen two consecutive weeks prior to last week. The energy product traded higher last week, moving up by $0.73 or 1.79% to settle Friday at $41.46. Despite climbing higher, price was able to trade to multi-month lows at $40.06 before bouncing. As crude remains on a downwards trend, it appears that the next target is $37.75 which was the low made at the end of August. Unlike crude, gold slightly slipped once again, marking the fifth straight weekly loss. Last week gold traded down $6.70 to settle Friday at $10.76.70. From a technical analysis standpoint, the daily MACD, which stands for Moving Average Convergence Divergence Indicator, is starting to form a nice bottom. Such a signal is the sign that the downside pressure is easing and that a market could start to trade in a sideways pattern before attempting action towards the upside. The MACD has not provided a buy signal yet; however, the last time that it did was in early October, and the price of the precious metal rallied about 7% before peaking. If gold is indeed able to bottom, a large move higher in the TSX may be a direct side effect.