S&P 500; US Indexes Fundamental Analysis – Forecast for the Week of November 28, 2016

U.S. equities closed higher last week as investors continue to participate in the post-election rally. Also underpinning the markets was optimism over the strength of the economy, expectations of a strong holiday season for retailers and OPEC deal to curb production this week.

An overall strong economy will help keep the overall market stronger while a good holiday shopping season will help the retail sector. A deal to curb production by OPEC should lead to higher oil prices which will support the oil sector.

In the cash market last week, the S&P 500 Index finished at 2213.35, the Dow Jones Industrial Average closed at 19152.14 and the NASDAQ Composite ended the week at 5396.24. All three major indices reached new all-time highs last week.

Last week in the futures market, the December E-mini S&P 500 Index closed at 2211.25, up 49.75 or 2.30%. The December E-mini NASDAQ-100 Index closed at 4868.50, up 120.50 or +2.54%. The December E-mini Dow Jones Industrial Average finished the week at 19144, up 357 points or +1.90%.

Forecast

It’s going to be a busy week in the U.S. this week. The major banks and institutional traders will return after taking off most of next week. Volume is expected to return to near average. I also suspect that volatility will also increase.

Although momentum is pointed higher, I’m a little concerned that the major players are not going to be too interested in chasing the indices higher. They like to buy on the dips so I suspect we are going to see a corrective move to the downside next week. The break may be a normal 50% correction of last week’s range or even as much as a 100% correction.

Investors are also likely to use next Friday’s jobs report as an excuse to book profits. Although investors are pricing in a 95% to 100% chance of a rate hike in December, they are still going to be watching the U.S. Non-Farm Payrolls for any signs of weakness. This may not be enough to convince the Fed to pass on a December rate hike, but it could influence the timing of the central bank’s future rate hikes in 2017.

Stock traders are likely to be influenced early in the week on Tuesday with the release of the Preliminary GDP report. It is expected to show the economy grew at a 3.0% pace, up slightly from the previous 2.9%.

On Wednesday, OPEC meets to make its decision on production. I think it will decide to cut production, but the decision is going to go down to the wire. Expect a volatile reaction to the news. ADP Non-Farm Employment Change is expected to show the private sector of the economy added 161K jobs in November.

On Thursday, ISM Manufacturing PMI is expected to come in at 52.1, up slightly from the previous 51.9.

Friday is the big report day. The government is expected to announce that Average Hourly Earnings increased 0.2%, down from the previous 0.4%. The headline Non-Farm Employment Change is expected to come in at 165K, up slightly from the previous 161K. Expect the Unemployment Rate to remain at 4.9%.

Look for volatility and much higher volume this week. I also expect a correction ahead of the jobs report and because the mutual funds and institutions are going to force stocks back to value areas before buying.