Macro Views Could Be Challenged But Likely Set on Expected Fed Hike

Hired? Yes. But spending? After the increase in November payrolls reported on Friday, this week’s economic lineup of consumer sentiment, mortgage demand, retail sales, and other reports (see the full economic calendar below) could help fill in some gaps for investors trying to stay a step ahead of the Federal Reserve.

The fuller picture of consumer strength could set the scene for a Fed that’s meeting December 15-16 and deciding whether now is the time for the first interest rate hike in nearly a decade. The Fed has been trying to wean the economy from the ultra-loose monetary policy in place since the recession, but timing has been a moving target complicated by weak commodities and anemic growth in select areas around the globe.

Stocks gained sharply Friday (figure 1), grabbing back all of Thursday’s retreat (the steepest decline in two months) at one point. That left the major averages on track to end the week little changed. Investors appeared to grow confident that “normalization” at the Fed could be a good thing, especially if the pace of hiring picks up as industry economists are expecting.

For now, the U.S. economy added 211,000 new jobs in November, topping a general Street consensus for about 200,000 nonfarm jobs. The unemployment rate was unchanged at 5%, kept in place by more people joining the labor force in search of work, Labor Department statistics show. The labor-force participation rate was up a tick to 62.5%. Employment gains for October and September, meanwhile, were revised up by a combined 35,000. In fact, stats show that 298,000 new jobs were created in October instead of 271,000, for the biggest gain of 2015.

Fed Debate Expected
Of course, wage growth is still a potential sticking point and fodder for dovish Fed members. Average hourly wages paid to American workers rose 0.2% in November, a bit slower compared to the prior month.

It’s this lingering uncertainty, plus plenty of energy market volatility, that could keep things interesting for the Fed and for stock traders. Some industry analysts noted that Friday’s stock market recovery was so strong only because Thursday’s drop looked overdone. When all was sorted out, the economic picture facing a deliberating Fed had not really changed. Now, some would argue that the global picture is only getting more complicated. They pinned Thursday’s drop on disappointment after the European Central Bank offered a smaller-than-expected expansion of its monetary stimulus program. That’s right. It’s not just our own Fed that matters right now.

All told, it appears that stock traders’ nerves are up at least a little bit heading into mid-month. A quick glance at the CBOE Volatility Index (VIX) futures pricing chart shows volatility expectations rising during the week of the Fed’s December 15-16 meeting. That week includes the potential added volatility of “quadruple witching”—the expiration of futures and futures options on top of stock and index options.

OPEC made no mention of a production target in their final communiqué. OPEC President Emmanuel Ibe Kachikwu told reporters that members saw no need to mention a hard figure but that there had been agreement to maintain a ceiling that reflects “current actual production,” according to financial press covering the meeting.

While OPEC previously had a production ceiling of 30 million barrels a day, members have been producing closer to 31.5 million barrels a day, according to market estimates.

Crude fluctuations—and any related economic or stock market fallout—are likely to continue to drive trading—at least right up until the Fed steals the show.

Commission-free trading requires qualifying deposit. Get complete offer details.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2015 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.