U.S. equities climbed another 1.4 percent last week, rising each day of the holiday shortened week. The S&P 500 has now gained 3.4 percent since the election. At the sector level, last week's rise was once again in character with the nature of the rally since the election. Materials and industrials led the way, followed closely by energy and consumer discretionary stocks. Notably, however, the interest rate sensitive groups also fared well, on the leveling off of the surge in bond yields. Telecom, utilities, staples and REITs all enjoyed a strong rebound from their earlier weakness. In fact, only healthcare stocks failed to rise last week, suffering only a fractional loss, however.

Between the election and a week ago Friday, the yield on the ten-year U.S. Treasury note climbed 50 basis points to 2.36 percent. However, last week that move stalled, and the yield slipped back to end the week at 2.33 percent. Aside from the sheer magnitude of the rise in such a short period of time, perhaps also contributing to the pause was the ongoing rise in the dollar, which added another fractional gain last week and has climbed 3.7 percent since the election. Crude oil may also have played a role last week.

Oil Market Skeptical of a Production Cut from OPEC

Rising skepticism over the likelihood of a production cut at this week's OPEC meeting sapped some of the enthusiasm from oil bulls. Brent was basically unchanged on the week at $46.90 a barrel, while West Texas Intermediate (WTI) drifted lower by $0.67 to close at $45.69. For the past six months crude has been trading in at $10 a barrel range, bounded roughly by $54 on the high-end and $44 on the low end. Where it has traded within that range at any given time has corresponded to the supply backdrop and the perceived likelihood of action by major foreign producers to curb output. The day of reckoning on the latter issue arrives this week and recent statements leading up to Wednesday's meeting by various participants has eroded confidence that anything meaningful will result.

A credible agreement would likely push the price of crude to the upper-end of its recent range and provide support at that level. However, if the meeting is perceived as a failure, the question is whether the price of crude pierces the lower-end of its recent trading range, given the current excess supply overhang.

The answer has implications for domestic earnings expectations. The energy sector is now expected to deliver positive earnings growth in the current quarter of 3.3 percent. In last year's fourth quarter WTI averaged $42.20 a barrel, although prices declined steadily from $46 to $36 to end the year. So far in this year's fourth quarter WTI has averaged $47.91 a barrel, a favorable comparison. However, energy sector earnings in 2017 are currently forecast to grow by 342 percent versus this year. So far in 2016, WTI has averaged $42.59 a barrel. If the price languishes toward the lower-end of their recent trading range well into 2017, meeting projected earnings growth targets may prove to be problematic.

The Economy is Looking Good

Last week's economic data was once again strong, led by durable goods orders, flash Purchasing Managers Indexes (PMIs) and consumer sentiment. This week's calendar is full, as we will see job growth in November, currently projected to show another strong gain of 175,000 new non-farm jobs. We will also get the revised third quarter GDP report, originally reported as a 2.9 percent annualized rate of growth. Also scheduled are personal income and spending, construction spending, the Personal Consumption Expenditure (PCE) deflator for October, ISM manufacturing and vehicle sales. Expectations for a rate hike in December are now 100 percent according to Factset.

Finally, Italy goes to the polls on Sunday to weigh-in on changes to its constitution. The referendum has become a proxy, however, for the populist voice in Italy, with implications for its own standing inside the Eurozone and European Union. A 'no' vote would trigger no immediate change, although the current prime minister has threatened to resign. A 'no' vote would also raise new questions about the future of Europe.

Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.

The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.

The ISM manufacturing index is a national manufacturing index based on a survey of purchasing executives at roughly 300 industrial companies.

The Purchasing Managers' Index™ (PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.

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Ameriprise Financial Inc. published this content on 29 November 2016 and is solely responsible for the information contained herein.
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