Rally Runs Out of Steam

The major market indices finished the week broadly lower with the S&P 500 posting its first weekly loss in seven weeks. Weighing on the markets were renewed worries over the pace of global growth, the growing likelihood the Federal Reserve will raise rates at the December FOMC meeting, a nearly 8% sell-off in oil prices and the violation of some major technical support levels.

November 16, 2015    |    By Mike Schwager

Performance for Week Ending 11/13/15:

The Dow Jones Industrial Average (Dow) fell 3.71%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 3.66%, the Standard & Poor’s 500 Index (S&P 500) declined by 3.63% and the Nasdaq Composite Index (NASDAQ) shed 4.26%. Sector breadth was negative with 9 of the 10 S&P sector groups finishing lower. The Energy (-5.97%) led the way lower followed by Technology (-4.61%) and Consumer Discretionary (-4.59%). The Utilities sector bucked the trend by closing up 0.33%.

Index* Closing Price 11/13/2015 Percentage Change for Week Ending 11/13/2015 Year-to-Date Percentage Change Through 11/13/2015
Dow 17245.24 -3.71% -3.24%
Wilshire 5000 20834.20 -3.66% -2.14%
S&P 500 2023.04 -3.63% -1.74%
NASDAQ 4927.88 -4.26% +4.05%

*See below for Index Definitions

MARKET OBSERVATIONS: 11/9/15 – 11/13/15

The major market indices finished the week broadly lower with the S&P 500 posting its first weekly loss in seven weeks. Weighing on the markets were renewed worries over the pace of global growth, the growing likelihood the Federal Reserve will raise rates at the December FOMC meeting, a nearly 8% sell-off in oil prices and the violation of some major technical support levels.

On the Fed front, the debate now seems to be turning away from “when” to “how far, how fast.” Clarity and assurance that the path forward will be very gradual has almost become a prerequisite for the market to make a sustainable move higher, in my opinion. Bloomberg data shows that investors are currently betting (37% probability) that the second hike won’t come until the June meeting. The time gap between hike #1 and hike #2 will be crucial in assessing just what the Fed means by “gradual.”

Following the surge in the markets since late-September a period of backfilling isn’t all that surprising. While the path of least resistance over the remainder of the year still feels skewed to the upside, overall gains will likely be modest. With that said, the broader narrative supporting the domestic markets over the past few year’s remains very much intact and ultimately solid fundamentals should prevail. The US economy continues to move in the right direction, earnings are growing (albeit modestly), the labor markets continues to strengthen, inflation remains muted, and the US housing market, which is the single largest store of wealth for the country, continues to recover.

Q3 Earnings Season:
Through Friday, 460 members of the S&P have reported results with just over 70% surprising to the upside. For context, the average earnings beat since 2004 has been 66%. Overall reported earnings for the S&P are currently down 3.4%, but still solidly better than the 5%-plus decline expected at the start of earnings season. When the Energy sector, which has been blasted due to the plunge in oil prices, is excluded—S&P earnings are actually up 3.5%. Expectations heading into the quarter were muted due to global growth concerns and the lingering impact of the strong dollar and weaker energy prices. With the bar set so low, the better than feared results are hardly surprising.

The Week Ahead:
Earnings season continues to wind down with just 19 members of the S&P 500 scheduled to report earnings. Retailers will dominate the calendar with results due out from Home Depot, Wal-Mart Stores, Lowe’s and Target. On the economic front, data points of interest include the Empire State manufacturing survey, the Consumer Price Index (CPI), industrial production and capacity utilization, the National Association of Home Builders’ November housing market index, October housing starts and building permits and the October Philadelphia Federal Reserve survey. The Federal Reserve is also scheduled to release the minutes from the October Federal Open Market Committee meeting on Wednesday. The Fed speaking calendar will also be busy with 9 appearances scheduled including New York president William Dudley on Wednesday. Dudley is closely watched as his opinions often align very closely with Fed Chair Yellen.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

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