Last Friday, stocks ended a successful year on a down note, with the Dow Jones Industrial Average falling 0.3%, the S&P 500 losing 0.5%, the Nasdaq falling 0.9% and the Russell 2000 losing 0.4%. However, Friday’s decline appeared to be the result of balancing of institutional portfolios, made obvious by the block selling in the last minutes of the year.
However, for the full year the Dow Jones Industrial Average gained 13%, its best year since 2013, the S&P 500 rose 9.5%, the Nasdaq gained 7.5%, and the Russell 2000 jumped 19.5%. These gains were made despite the headwinds of Brexit, the uncertainties of a presidential election, terrorist attacks throughout the world and a meager economic recovery in the U.S.
Friday’s decline was most pronounced in the S&P 500’s results, with nine of eleven sectors closing in the loss column. The losing sectors were led by technology (-1%), consumer discretionary (-0.9%), and materials (-0.7%). The only sectors with gains were real estate (+0.9%) and financials (+0.2%). For the year the financial sector led all others, gaining over 20%, and the worst-performing sector was healthcare (-0.4%).
At the close the Dow Jones Industrial Average fell 57 points to 19,763, the S&P 500 fell 10 points to 2,239, the Nasdaq lost 49 at 5,383 and the Russell 2000 closed at 1,357, losing 6 points. The NYSE’s primary exchange traded 803 million shares with total volume of 2.7 billion shares, and the Nasdaq crossed 1.5 billion shares. On the Big Board, decliners led advancers by 1.2-to-1, and on the Nasdaq, decliners led by 1.5-to-1. Blocks on the NYSE increased to 6,219 over 5,016 on Thursday.
Despite the mixed signals late in 2015 and early in 2016, the trustworthy 17-month moving average for the S&P 500 produced a final buy signal in March, which then held throughout the year. Although the price line is almost 8% above the moving average, the trend is very much in favor of the bulls. Any pullbacks should be viewed as buying opportunities.
Technically the failure of the 500 to break out of the wedge at 2,272 on low volume on the last trading day of the year has little predictive value. But it could provide a buying opportunity for investors who will search for bargains from “window dressing.” The next support line is at the November closing high at 2,213.
Conclusion: “Window dressing,” according to Schaeffer’s Investment Research, can create trading opportunities. Fund managers have one last chance to adjust their holdings prior to their annual reports. By changing their holdings prior to that report, they make their portfolios appear to be more oriented to higher quality. They often accomplish this by selling lower-quality stocks in which they have large profits, but that provides opportunities for public buyers to grab some “low-hanging fruit” for trades that can often be sold at a profit in Q1 of the next year.
I look for these opportunities that often appear in years when lower-quality stocks have big moves, like some in 2016.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
