In contrast to last week's relatively quiet holiday trading action, this week could feature some volatile movements. Three big, market-moving events will take place next week and could determine whether the Santa Claus rally continues or falters.
With the S&P 500 only up 1.5% this year, the performance next week will help decide whether the index finishes in the green for 2015.
Black Friday Sales
The holiday shopping season unofficially kicks off the day after Thanksgiving, or on "Black Friday." Early sales estimates for the three-day weekend that includes Black Friday should be available early this week, and may push the market one way or the other.
Retail ETFs like the SPDR S&P Retail ETF (XRT | A-52) and the Market Vectors Retail ETF (RTH | A-81) may be the biggest movers on these figures. However, it's important to note that Black Friday sales aren't necessarily indicative of how the entire holiday shopping season will turn out.
For example, last year, the National Retail Federation reported that Black Friday weekend sales declined by 11%, but by the end of the year, total holiday retail sales ended up rising by 4% year-over-year.
European Central Bank Decision
The European Central Bank (ECB) is widely expected to provide more stimulus when it makes its next monetary policy decision on Thursday. Economists anticipate that the central bank could expand its 60 billion euro a month quantitative easing program, cut its already-negative deposit rate further or unveil new measures altogether.
Expectations of more stimulus have pushed the dollar sharply higher against the euro, with the PowerShares DB US Dollar Index Bullish ETF (UUP | B-73) up nearly 9% this year. At the same time, hopes for stimulus have benefited ETFs such as the exporter-heavy WisdomTree Europe Hedged Equity ETF (HEDJ | B-49), which has smartly outperformed this year, with a 14% return.
If the ECB disappoints, that could spell bad news for these ETFs. However, if it delivers enough stimulus to satisfy investors, the rally could continue.
US Jobs Report
Perhaps the most significant event of the week will come on Friday, when the Bureau of Labor Statistics releases the nonfarm payrolls report for November. As always, there are essentially three scenarios for the report: It comes in much weaker-than-expected; it comes in close to expectations; or it comes in much stronger than expected.
Currently, economists are anticipating that employers added 200,000 jobs in November, down from October's extremely robust 271,000 jobs. Anything higher than 150,000 jobs may be enough to compel the Federal Reserve to hike its benchmark overnight interest rate later in December for the first time in 9 1/2 years.
A much-weaker-than-expected report may give the Fed pause and reignite growth worries from earlier this year. On the other hand, a much-stronger-than-expected report may raise concerns that the Fed is behind the curve and that it must hike interest rates rapidly in 2016 to prevent inflation.
For broad-market ETFs like the SPDR S&P 500 (SPY | A-98), a Goldilocks number that is not too hot and not too cold is the ideal scenario.
Contact Sumit Roy at email@example.com.
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