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Beyond the Numbers

Recent Upward Momentum May Continue To Push Stocks Higher
12/9/2016 9:02 AM

The major U.S. index futures are pointing to a modestly higher open on Friday, with stocks poised to extend a recent uptrend. The markets may continue to benefit from recent upward momentum, which has propelled the major averages to new record highs.

Trading activity may be somewhat subdued, however, as traders look ahead to next week’s Federal Reserve announcement. The Fed is widely expected to raise interest rates by a quarter point, reflecting the first rate hike by the central bank in a year.

Following the rally seen on Wednesday, stocks saw some further upside during trading on Thursday. With the continued strength on Wall Street, all three of the major averages reached new record closing highs.

The major averages closed in positive territory but off their best levels of the day. The Dow rose 65.19 points or 0.3 percent to 19,614.81, the Nasdaq climbed 23.59 points or 0.4 percent to 5,417.36 and the S&P 500 edged up 4.84 points or 0.2 percent to 2,246.19.

The higher close on Wall Street came on the heels of the European Central Bank’s highly anticipated monetary policy announcement. While the ECB said its asset purchase program is being extended longer than anticipated, the bank also said it will slow the pace of purchases.

The ECB said it decided to continue its asset purchases at the current monthly pace of 80 billion euros until the end of March of 2017. From April of 2017, the asset purchases are intended to continue at a monthly pace of 60 billion euros until the end of December 2017, or beyond, if necessary

In his subsequent press conference, ECB President Mario Draghi argued the reduction does not qualify as “tapering” and said the option of scaling back bond purchases to zero was not discussed by policymakers. Draghi stressed the asset purchases could be expanded or extended if the economic outlook worsens.

On the U.S. economic front, the Labor Department released a report showing that initial jobless claims pulled back in the week ended December 3rd after reaching a five-month high in the previous week.

The report said initial jobless claims fell to 258,000, a decrease of 10,000 from the previous week's unrevised level of 268,000. The drop in jobless claims matched economist estimates.

Oil service stocks showed a strong move to the upside over the course of the session, driving the Philadelphia Oil Service Index up by 2.4 percent. With the gain, the index reached its best closing level in a year.

Significant strength was also visible among networking stocks, as reflected by the 2.4 percent gain posted by the NYSE Arca Networking Index. The index jumped to a fifteen-year closing high.

Ciena (CIEN) led the networking sector higher, surging up by 15.1 percent after reporting weaker than expected fourth quarter earnings but saying its order backlog is the highest ever.

Tobacco, financial, and housing stocks also moved notably higher, while most of the other major sectors showed more modest moves.

Commodity, Currency Markets

Crude oil futures are climbing $0.55 to $51.39 a barrel after jumping $1.07 to $50.84 a barrel on Thursday. Gold futures are currently trading at $1,169.80 an ounce, down $2.60 from the previous session’s close of $1,172.40 an ounce. On Thursday, gold fell $5.10.

On the currency front, the U.S. dollar is trading at 114.89 yen compared to the 114.04 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0577 compared to yesterday’s $1.0615.

Asia

Asian stocks ended mixed on Friday despite Wall Street stocks hitting fresh record highs overnight. Investors looked ahead to next week's Federal Reserve meeting amid bets that the U.S. central bank will raise interest rates for the first time in a year.

China's Shanghai Composite index rose 17.52 points or 0.54 percent to 3,232.88 after a government report showed consumer inflation in the country picked up for a third straight month in November on signs of improving demand.

Consumer prices rose an annual 2.3 percent, exceeding expectations for a 2.2 percent and up from a 2.1 percent increase in October. The producer price index surged up 3.3 percent from a year earlier, the fastest pace in more than five years.

Meanwhile, Hong Kong's Hang Seng Index fell 100.86 points or 0.44 percent to 22,761, dragged down by casino stocks.

Japanese shares hit their highest level in a year, as the yen weakened against the dollar and a survey showed large Japanese manufacturers turned more optimistic about economic conditions in the fourth quarter.

The Nikkei 225 Index jumped 230.90 points or 1.23 percent to 18,996.37, taking this week's gains to 3.1 percent. The broader Topix Index closed 0.84 percent higher at 1,525.36 in heavy trading amid the settlement of December futures and options contracts.

Honda Motor rose over 1 percent after unveiling plans to build its third automobile production plant in China. Index heavyweight Fast Retailing rallied 3.6 percent, while oil majors JX Holdings, Inpex and Japan Petroleum climbed 3-5 percent.

Marui Group advanced 2.3 percent on a Nikkei report that its rental income from retail operations is likely to jump 130 percent in fiscal 2016.

Australian shares extended gains for a fourth day. The benchmark S&P/ASX 200 Index rose 17 points or 0.31 percent to 5,560.60, a fresh three-month high, while the broader All Ordinaries Index closed 16.80 points or 0.30 percent higher at 5,615.80.

Higher oil prices pushed up energy stocks, with Origin Energy and Woodside Petroleum rising 1.6 percent and 2.4 percent respectively. Banks ANZ, Commonwealth and NAB rose over 1 percent each.

Sirtex Medical shares plunged 37 percent after the cancer treatment company warned its earnings could fall due to weaker than expected sales growth. Casino operator Crown Resorts lost 5.3 percent on a report that China is imposing a 50 percent cut on UnionPay ATM withdrawal limits in Macau.

Europe

The major European markets have all moved to the upside on the day. While the French CAC 40 Index has risen by 0.4 percent, the U.K.’s FTSE 100 Index and the German DAX Index are up by 0.2 percent and 0.1 percent, respectively.

The day's economic reports painted a mixed picture, with German exports and imports recovering in October from September, while French industrial and manufacturing output declined unexpectedly in October.

Electrolux shares have rallied after the Swedish home appliance manufacturer said it is focused on achieving sustainable profitability in all business areas, with a high priority on securing a Group EBIT margin of 6 percent over the business cycle.

Digital security firm Gemalto has also soared after it agreed to buy 3M's identity management business for $850 million.

Meanwhile, Capita shares have slumped in London a day after the outsourcing group issued its second warning in three months and said it would sell its asset services division.

U.S. Economic Reports

At 10 am ET, the University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of December.

The consumer sentiment index is expected to inch up to 94.1 in December after jumping to 93.8 in November.

The Commerce Department is also scheduled to release its report on wholesale inventories in the month of October at 10 am ET. Inventories are expected to drop by 0.4 percent.

Stocks in Focus

Coca-Cola (KO) announced President and COO James Quincey will succeed CEO Muhtar Kent, effective May 1, 2017. Kent will continue as Chairman of the Board of Directors.

Restoration Hardware (RH) reported third quarter results that exceeded analyst estimates but lowered its full-year guidance.

Drug maker Bristol-Myers Squibb (BMY) raised its quarterly dividend by 2.6 percent to $0.39 per share.

3M (MMM) announced an agreement to sell the identity management business within its Traffic Safety and Security Division to Gemalto for $850 million.

Stillwater Mining (SWC) said it has entered into an agreement to be acquired by Sibanye Gold (SBGL) for $18 per share in cash representing an aggregate enterprise value of $2.2 billion.

Broadcom (AVGO) reported better than expected fourth quarter results and doubled its quarterly dividend to $1.02 per share.

Enzo Biochem, Inc. (ENZ) reported a net loss of $1.474 million or $0.03 per share for the first quarter, compared to a loss of $4.434 million or $0.10 per share in the previous year.

Fiber optics component supplier Finisar (FNSR) reported better than expected second quarter results and provided upbeat guidance.
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