Traders work on the floor of the New York Stock Exchange (NYSE) in New York, United States, October 20, 2021.
Brendan McDermid | Reuters
If history is any guide, the market should be doing well over the upcoming Thanksgiving holiday week.
The S&P 500 was slightly higher last week, supported by positive economic reports, particularly the unexpected 1.7% jump in retail sales in October. There are a number of economic reports in the coming week. The most prominent release is on Wednesday’s personal consumption spending, which includes the Federal Reserve’s most closely watched measure of inflation.
“The last five trading days in November have been traditionally positive, since 1950,” said Sam Stovall, chief investment strategist at CFRA. “There is a two-thirds chance that the market will be up the day before Thanksgiving, a 57% chance the day after Thanksgiving, and a 71% chance that it will be up Monday.”
This year, that holiday gathering could depend on whether or not Federal Reserve Chairman Jerome Powell remains in office after his term expires in February. Biden also interviewed Fed Governor Lael Brainard, who is backed by Progressive Democrats.
Strategists expect market volatility around the appointment, especially if it’s Brainard. She is seen as more accommodating than Powell, which means she might be slower to raise interest rates. High levels of inflation have been a concern in the market, and the worry is that Brainard would not be as aggressive in combating it with much needed rate hikes.
“Barring a change at the head of the Fed, I think the market path will continue to be higher as we head into 2022,” said Jeff Schulze, investment strategist at ClearBridge Investments. “Given that Brainard is even more accommodating than Powell, I think markets would recover very quickly (…) markets are unsure if the new Fed chairman could get consensus in the FOMC to implement an effective policy, ”he added.
Schulze said economic dynamics are improving and he expects fourth-quarter gross domestic product to be in double digits after the disappointing 2% pace in the third quarter. The second reading of third quarter GDP is released on Wednesday.
Over the past week, the Philadelphia Fed manufacturing index also showed strong and better-than-expected activity in the mid-Atlantic region. “This really confirms the view that despite constraints on the supply side, the recovery is on track after the Covid-related slowdown in the third quarter,” Schulze said. “I think the markets will integrate better earnings as we move into fourth quarter and 2022 earnings.”
But Stovall said the market could take a break before rising, and he expects a choppy time. The S&P 500 gained on average 7.2% between its October low and the end of the year. But in early November, the S&P 500 was up more than 9% from its low and was overbought, he said.
Stovall also said the market could again be concerned about the spread of Covid in Europe and beyond. Due to a high rate of new cases, the Austrian government has announced a three-week lockdown and a vaccination warrant.
Stocks reacted negatively to the Austrian news on Friday, although the tech-rich Nasdaq gained. Stocks were mixed for the week, with the Dow Jones down 1.4% and the Nasdaq up 1.2%, buoyed by gains in tech stocks. The S&P 500 rose 0.3% for the week, ending at 4,697.
“There is still upside potential. Concern over inflation and now Covid are reasons the overbought condition is subsiding,” he said. Stovall added that the market may move sideways to fall for a while, but is expected to end the year higher. “But right now there is a bit of commotion because of Covid, because of the possible replacement of the Fed chairmanship, the concern about inflation and now and a whole variety of things,” a- he declared.
For investors watching the benchmark 10-year Treasury yield, Wells Fargo bond strategists point out that long-term Treasury yields typically fall on the Monday and Tuesday before Thanksgiving.
“Our point is simple and essentially follows the same logic as the movements around Labor Day: risk appetite is low on both the buy and sell side,” they said. But later in the week, starting on Wednesday, the yield tends to increase.
Calendar for the upcoming week
Earnings: Zoom Video, Jack in the Box, Agilent, Urban Outfitters
10:00 am Sales of existing homes
Earnings: HP, Dell Technologies, Abercrombie & Fitch, Best Buy, Nordstrom, Gap, VMWare, Cracker Barrel, American Eagle Outfitters, Dick’s Sporting Goods, Pure Storage, AutoDesk, Dollar Tree, JM Smucker
9:45 a.m. Manufacturing PMI
9.45 a.m. PMI Services
8:30 am First jobless claims
8:30 am Durable goods
8:30 am Real GDP
8:30 am Advanced economic indicators
10:00 am Consumer sentiment
10:00 am Personal income and expenses, PCE deflator
10:00 am Sales of new homes
2:00 p.m. FOMC meeting report
US markets closed
Closing of the stock exchange at 1 p.m.