Markets Start The Year In Rally Mode, With Fed Minutes And Auto Sales On Tap

Yesterday’s impressive rally and a positive tone in pre-market trading Wednesday seem to put stocks on firm footing to start the year. That said, it’s a short week, and there’s a lot of news coming up. Employment data on Friday and earnings season starting next week could give the markets a bit more direction.

Fed minutes are on the schedule this afternoon (see below), but with the futures market showing less than a 50% chance of a rate hike even at the May meeting, it seems unlikely that the release of last month’s minutes could have much impact on the markets. Still, market participants are likely going to scour every word.

Also on tap today: December auto and truck sales (see below). 

Volatility remains muted early in the new year, with VIX falling slightly early Wednesday and recently trading at 12.73. By comparison, the VIX never fell below 19 last January and stayed above 18 until March. The current low reading suggests that market participants don’t see much chance of the kind of roller coaster ride the markets gave us early last year.

Leading sectors on Tuesday included financials, telecommunications, energy, and health care. By the end of the day, the S&P 500 Index (SPX) had tallied its biggest daily gains in nearly a month. The impressive rally might reflect the U.S. data as well as overseas data, with growth in China a key driver. U.S. factory activity and construction spending released Tuesday both showed more signs of an expanding economy.

It’s possible that Tuesday's brief midday slide in stocks had something to do with a sell-off in crude oil, which was down 2% at one point Tuesday but up slightly early Wednesday. Analysts expect data tomorrow to show a large draw from U.S. stockpiles, according to media reports. Oil came under pressure in part due to strength in the dollar, which remains at multi-year highs despite slipping a little against the euro and yen early Wednesday.

One stock to watch on Wednesday could be Tesla Motors Inc TSLA, which fell in premarket trading after coming up short of its goal for vehicle deliveries in 2016. TSLA reported 76,230 vehicles delivered last year, falling short of its previous range of 80,000 to 90,000. The silver lining might be TSLA’s declaration that the shortfall was due to short-term production challenges that the company overcame by early December, and that demand was strong in Q4.

SPX resistance remains at around 2272. 

Get Ready for Auto/Truck Sales

The data calendar is pretty light Wednesday, other than auto and truck sales for December. After climbing steadily between roughly 2010 and 2015, sales have leveled off a little the last few months, but remain historically strong. November U.S. light vehicle sales reached a seasonally adjusted annual rate (SAAR) of 17.87 million, down from 18.02 million in October, and 2.1% below a year earlier. Auto and truck sales remain an excellent resource for investors who want a measure of consumer sentiment.

Friday Jobs Data Looming

Who tends to buy new cars? Often people with jobs, it seems fair to say. Early estimates are popping up for Friday’s December payrolls report, with the current Wall Street analyst consensus estimate at 175,000 jobs created. That’s down from 178,000 the previous month, but pretty close to the 2016 average of 180,000. The unemployment rate is seen creeping up to 4.7%, from 4.6% in November, Briefing.com reported. Sometimes a higher unemployment rate can actually be a positive sign for the economy, indicating that more people are looking for work. Hourly earnings could be the interesting metric to watch in Friday’s report, having fallen 0.1% in November. That drop came as a bit of a surprise, and analysts look for the December report to show wages climbing 0.3%.

Checking in on the Fed

Last month, when it raised rates for the first time in a year, the Fed surprised some market participants by projecting three rate increases in 2017. Expectations had been for just two. Some of the thinking behind that decision could be revealed today with the release of minutes from the December meeting, due out at 2 p.m. ET. Other things to watch for in the minutes include any projections the Fed might have for 2017 economic growth, and whether members discussed any specific proposals from President-elect Trump and possible effects on the economy should the proposals go through. We’re talking infrastructure, tax plans, and regulatory policy.