December begins with the S&P 500 perching at record highs. Importantly, the path to the latest records was traveled on tiptoe. The S&P 500’s average daily move last month was just 4.5 points. That’s about half as much volatility as September and a steep drop from the 18.5-point average daily price swings in October.
So now that the markets have slowed from the wild ride of early fall, what’s on tap for the final month of 2014?
It’s a light week for earnings, but a number of retailers, including Sears Holdings (SHLD), Dollar General (DG), and American Eagle (AEO), are out with results. The sector will also be in focus when a number of retailers report same-store sales results on Thursday. Plus, retail analysts will continue to crunch the Black Friday and Cyber Monday sales tallies. Monthly auto and truck sales numbers from the global automakers are due out Tuesday.
Consumer Focus
Expectations are building that consumer spending could inject a bit of stimulus into the economy as oil prices plummet. Crude dropped 6.3% Thursday (in fact, some U.S. trading desks opened on Thanksgiving to trade oil!) after OPEC concluded its latest meeting without announcing any plans to shore up prices. Even with energy trading desks fully powered, crude set fresh four-year lows Friday. Crude, which sat just north of $80 at the beginning of November, was near $64 in overnight action Monday. Falling oil is bad news for companies in that sector, but typically bodes well for shoppers, retailers, airlines, auto companies, and a host of others who’ll see their energy expenses fall.
Meanwhile, a relatively busy week of economic data includes monthly jobs numbers from the Labor Department on Friday. Reports on manufacturing, construction spending, and factory orders might also give a better sense about the current state of the U.S. economy as the Federal Reserve and Wall Street look ahead to 2015.
Volatility in Layers?
By most measures, risk perceptions—on the economy or the stock market—remain subdued. But there was a notable uptick in some volatility indexes on Friday. The CBOE Volatility Index (VIX), for instance, retreated back toward 12 before the Thanksgiving break and then added 1.25 to 13.32 to finish near session highs Friday (figure 1). The CBOE Russell 2000 Volatility Index (RVX), the “VIX” for small-cap stocks, was up 2.49 to 19.96 Friday, and the CBOE Emerging Markets ETF Volatility Index (VXEEM), a gauge of volatility for global emerging markets, gained 1.42 to 19.30.
Figure 1: The CBOE Volatility Index (VIX) remains well off its spike above 31 in October, but its... [+]
Yet, although key measures of volatility ticked higher Friday, most are well off mid-October highs and also down for Q4. For instance, VIX finished September at 16.31 and then hit multi-year highs of 31.06 two weeks later. It’s been mostly downhill sledding since then.
The S&P 500 (SPX), meanwhile, shaved 5.27 points to 2,067.56 Friday after recording another record high before the holiday on Wednesday. The index is up 4.8% since September and has rallied nearly 12% for the year. Can it continue to build on the gains in the final month of Q4? Jobs numbers (including the types of jobs being created), ongoing volatility in oil, and results from the retailers might hold important clues in the week ahead. Traders may want to keep SPX 2051 in mind for support. On the upside, most bulls believe a close above 2076 is needed for a challenge of 2100.
Good trading,
JJ
TD Ameritrade, Inc., member FINRA/SIPC. Commentary provided for educational purposes only. Past performance of a security, strategy, or index is no guarantee of future results or investment success.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
