The post election equity rally faltered a little last week as the S&P 500 fell 0.91%, small cap stocks as measured by the Russell 2000 were off 2.4%, the NASDAQ was down 2.62% and international equities were also down with the MSCI EAFE index declining 0.22%. For the week, the best performing sector in the S&P 500 was the energy sector which rose 2.6% on news that OPEC had reached an agreement to limit production for 6 months. U.S. crude prices spiked as a result of the news with oil closing the week up 12%.
In economic news, the U.S. jobs report added 178,000 jobs for the month of November with the unemployment rate falling to 4.6%. This marks the lowest reading since August 2007. Although the number is encouraging, the percentage drop also benefited from 400,000 people dropping out of the workforce. Also, GDP revised upward to 3.2% annualized from a prior estimate of 2.9%. This news combined with the employment report is enough to ensure that the FOMC will raise interest rates next week as anticipated.
In Italy on Sunday, voters rejected the referendum on constitutional reform which will add to volatility in EU markets. Political uncertainty in Italy could put further pressure on Italian banks which are already down 50% this year while rate spreads on Italian bonds have widened versus their Spanish and German counterparts.
“I always wanted to be somebody, but now I realize I should have been more specific.” – Lily Tomlin