Investors have a quiet week ahead in the last full week of trading for the year. On the economic front, we have University of Michigan Consumer Sentiment and US GDP.
That’s a Lock: As we approach the end of the year, some investors will be locking in profits or losses solely for tax purposes. We can expect to see over-sized blocks in individual stocks by certain firms. Some of these blocks have the potential to move stocks, triggering additional algos/computers to push the stock in a certain direction.
Bank of Japan: On Tuesday (12/19) the Bank of Japan has a Press Conference scheduled after announcing its Outlook Report & Policy Rate. Investors are not expecting any massive monetary policy shift. However, if BOJ Governor Haruhiko Kuroda announces some type of stimulus that disappoints, expect markets to react negatively.
New Home Sales: Investors will be looking to see how much new home sales have slowed because of rising interest rates and Treasury yields spiking. Last week saw housing starts collapse over 18% (Month over Month). If new home sales come in worse than expected, we can expect to see a selloff in home builder stocks.
US GDP: On Thursday (12/22) US 3rd Quarter Final GDP is released. Should the number come in higher than expected, we can expect to see equities go higher. If GDP is less than expected, we may see equities fall as investors will believe the economy is not growing as fast as expected. However, since the Fed just raised rates and the broader markets have been going higher since the election, investors will watch to see if the trajectory on US GDP increases.
Valuation: Investors are concerned that the "Trump rally" may have pushed valuations too high. We have seen the Dow Jones Industrials Average increase over 8% since the election. The S&P 500 is currently trading near 17.9 times forward 12-month earnings, above the 10-year median of 14.7 times, according to StarMine data. Investors will watch to see if we have any pullback as we head into the last week of the year.
US Dollar Strength: The strengthening US Dollar has raised alarms over the negative effect on earnings of companies with overseas exposure. The dollar index, which measures the currency against a basket of currencies, is trading near a 14-year high. Should the US Dollar continue to strengthen, investors may sell US companies which have a substantial amount of their sales outside the US. US export companies will also get affected as their goods become more expensive. On the plus side, those overseas vacations for US tourists will see a few extra bucks in their pocket to buy additional refreshments.