S&P 500 Hits New Record

Daily Analysis - 12/07/2016

Key American Equity Benchmark Climbs on Renewed Optimism in US Economy

After months of trending sideways following speculation that the Federal Reserve would choose to normalize interest rate policy further, a brighter outlook for employment and growth saw the S&P 500 rise to a new intraday record. Meanwhile, the Nasdaq Composite climbed to its highest level since December in a sign that concerns about the economic trajectory are gradually easing.

Nasdaq Futures Climb Above 5000

In what currently stands as one of the best rallies in years, the Nasdaq Composite rose back above the 5000 level for the first time since December 31^st. Despite the fact that forward earnings expectations have collapsed amongst many publicly traded companies, more positive risk sentiment is circling the globe in a sign that concerns about Europe’s latest debt crisis and a British exit are fading. Technology led the way higher in stocks, with Amazon (AMZN:NASDAQ) overtaking the market capitalization of Warren Buffett’s Berkshire Hathaway (BRK.A/BRK.B:NYSE). However, the Nasdaq Composite did slip back below the key threshold, closing the cash equity session at 4988.64. Aside from the technology-heavy Nasdaq Composite, the S&P 500 closed at a new record high, rising 0.34% during the session to 2137.16 while the Dow Jones Industrial Average notched a 0.44% increase.

Pound Strengthens on Political Outlook

After calls to speed the process of triggering Article 50 of the Lisbon Treaty, current UK Prime Minister David Cameron announced his plans to resign on Wednesday, paving the way for Conservative party member Theresa May to become the new leader of the nation. Although challenges to the referendum vote and a petition to revote were mounted in an effort to undo the results, both these motions were denied, meaning it still remains to be seen whether the next administration will go forward with the “leave” process. The immediate reaction to the announcement was positivity in the UK Pound which has had a rough performance since the vote results were tallied. The GBPUSD pair managed to claw its way back from levels near multi-decade lows, rising back above the critical 1.3000 psychological level during the Asian session.

Abe Reelection Brings Forth New Stimulus

It is no surprise that former Federal Reserve Chairman Ben Bernanke’s visit to Japan would raise a few eyebrows as the nation struggles to boost the economy through its quantitative and qualitative easing program. Even after his enduring struggle to revive economic activity in Japan has fallen short of targets, Japanese Prime Minister Shinzo Abe was reelected in a major victory for his party which now sees the Liberal Democratic Party control the upper house of the parliament. With these election gains, it is now easier to rubber stamp changes to economic policy without a drawn out battle amongst politicians now that Abe’s power base has claimed such a massive victory. Hints about future stimulus are already abundant, with some analysts and economists already floating the idea of dropping money off of helicopters to spur inflation. The Yen weakened significantly versus the dollar, with the USDJPY pair rallying to 103.33.

Bearish Oil Bets Surge

Oil prices are modestly higher this morning after 3-straight sessions of losses following speculation that the gains in prices were due to shrinking supply that is set to reverse following the latest drill rig count data and the end of disruptions in several critical producing regions. According to oil services giant Baker Hughes (BHI:NYSE), 10 oil rigs were added to the count in the last week in a sign that factors that drove oversupply across the globe are mounting a comeback. Although production in the US took a significant tumble, most of the recent output losses are the result of seasonal repairs and maintenance measures from Alaskan production. Oil prices are nevertheless falling as institutional traders take more bearish positions after several months of riding the rebound higher, with WTI trading marginally below $45.00 per barrel at $44.87.