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Perspectives from Above the Noise -- Week of December 12th, 2016

Perspectives from Above the Noise -- Week of December 12th, 2016

December 12, 2016

U.S. stocks rose for a second week with the S&P 500 extending its rally into a sixth day, its longest daily winning streak since June 2014, as the post-election rally continues to expand. Bank shares are continuing to outperform, sending the broader Financials sector up 18.9% since Election Day, while the Russell 2000 Index, a measure of smaller-sized company performance, is up 16.6% over the same period. Healthcare and household product makers led gains on Friday after underperforming for much of the rally. Wall Street also benefited from the European Central Bank’s (ECB) decision to extend its monthly asset-purchase program. On Thursday, ECB chief Mario Draghi said the central bank will continue the program through December 2017, albeit at decreasing amounts from April at €60B per month, down from €80B.

For the week, the S&P 500 rose +3.13%, the Dow Industrials rose over 586-points (+3.06%), and the MSCI EAFE (developed international) advanced 2.91%.

What We’re Reading

The Fed’s Near-Certain Rate Hike -- CNBC

Oil Surges on Deepening Production Cuts -- Bloomberg

Chinese Shares Tumble -- Marketwatch

Chart of the Week: Stocks Typically Lag With New GOP Presidents

From a historical view, stocks typically do not fare well during the first year/first term of new Republican presidents. In Table One, CFRA Chief Strategist Sam Stovall shares data showing the S&P 500 fell an average of 2.7% during the first year of a new Republican president’s first term in office. What’s more, the S&P 500 declined in price in four of the five Republican presidencies since World War II. Only President Bush (41) saw the market rise in his first year in office. Granted, just five observations are not statistically significant, but the results are intriguing, particularly when compared with the results under first-year Democrats.

Let’s hope that this time history is only a guide and not gospel. Indeed, as Stovall is forecasting favorable corporate earnings trends for S&P 500 companies next year. In fact, ten of the 11 major sector groups are expected to post year- over - year earnings-per-share (EPS) increases in 2017, led by a turnaround story in Energy. What’s more, double-digit increases are projected for Financials, Materials and Technology sectors. Consumer Discretionary, Consumer Staples, Healthcare, and Real Estate groups are expected to record EPS growth of 7.5% to 9.0%. Finally, only Industrials, Telecom, and Utilities are likely to record EPS growth below 4.0%, with Utilities expected as the only earnings decliner next year.

Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.