The S&P 500 pulled back 0.97% for the week, to close on Friday at 2,191.95, led to the downside by the Information technology and Consumer discretionary sectors. The Energy sector outperformed following the OPEC production cut agreement announced on Wednesday. The yield of 10-year U.S. Treasury Notes continued to rise after hawkish comments from Fed officials about future interest rate hikes, which supports the Financials sector. Fed hawks, including Cleveland Fed President Loretta Mester, said on Wednesday that raising interest rates now would help, rather than hurt, the economic recovery. 

David Kostin, Goldman's chief U.S. equity strategist, wrote in a client note on Wednesday that the Fed would raise the short-term rate target to a total of 100 basis points, meaning a 25 basis point rate hike in December and two more hikes next year.

The Healthcare sector remained under selling pressure, down 1.6% for the week. Allergan PLC (NYSE:AGN) Chief Executive Brent Saunders, speaking at the annual Forbes Healthcare Summit in New York on Thursday, warned that President-elect Trump could be a "more vicious tweeter" against the drug industry than his former Democratic rival Hillary Clinton had been during the campaign. 

Mr. Trump was on a Twitter frenzy on Sunday, slamming companies that plan to move overseas for one or another reason. Here were some of his tweets, “expensive mistake! THE UNITED STATES IS OPEN FOR BUSINESS” … “without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies ......” 

The U.S. Department of Commerce said on Tuesday that its revised the third-quarter 2016 GDP upwards from an annual rate of 2.9% to 3.2%. The quarter would have been another mediocre one without a surge in soybean exports after a poor soy harvest in Argentina and Brazil. The Commerce Department also said the second estimate real gross domestic income (GDI) in the third-quarter 2016 surged 5.2%, after being on a downward slide since the third-quarter 2015.

The U.S. Labor Department reported its November nonfarm payrolls report on Friday, showing a seasonally adjusted increase of 178,000 jobs that slightly beat Wall Street economists' median forecast of a 175,000 gain. The government revised September’s number again from 191,000 to 208,000, while October's number was lowered to 142,000 from 161,000. The U.S. unemployment rate dipped to 4.6% in November, as the civilian labor force participation rate dropped to 62.7%, meaning some 95.06 million Americans are not in the labor force. The number of people who are not in the labor force but want a job now, decreased slightly to 5.88 million in November from 5.91 million registered in October. 

Total nonfarm payrolls growth now stands at 1.52% year-on-year, to 145.04 million in the fourth-quarter 2016, the slowest pace since the first-quarter 2013. One can argue that the slow growth in total nonfarm payrolls could be due to the lack of qualified workers, as the labor market approaches maximum employment. Nonetheless, at this rate, job growth could be well below 1% by next year.

This week’s economic news prompted the Federal Reserve Bank of New York to raise its fourth-quarter 2016 GDP forecast 30 basis points on Friday, to 2.7% from the previous 2.4%, citing positive data from GDI and the labor market, and only slightly negative figures from personal consumption expenditures. Taking the latest New York Fed forecast into account, the pace of U.S. GDP 2016 annual growth will be just 1.6% year-on-year and a compounded annual growth rate (CAGR) of 2.1%, since the deep recession of 2009.

For the week, the U.S. Dollar index (DXY), essentially the USD/EUR exchange rate, pulled back 0.66% to close at 100.66, as the hype about a December Fed interest rate hike wanes. The yield of 10-year U.S. Treasury Notes gained 1.36% this week to close at 2.392% on Friday, while the yield spread between the 10-year and 2-year U.S. Treasury Notes widen to 1.29 percentage points. The 10-year U.S. Treasury yield is bumping into the trendline resistance at about 2.41%, but could pull back sharply if it fails to break out. The 10-year JGB yield jumped 8.11% to 0.04% at the close on Friday, while the 10-year German bund yield surged 16.18%, to close at 0.28%.

The WTI crude price jumped 12.2% this week, to close at $51.68 per barrel on Friday, while the Brent crude spot price gained 15.33% to close at $54.48 per barrel, after OPEC agreed on Wednesday in Vienna to reduce its production from 33.7 million barrels per day (bpd) to 32.5 million bpd, effective in January. According to Reuters, OPEC will meet with non-OPEC countries on December 10 in Moscow to finalize the deal of their output in the next six months, but Russia has already promised to reduce 300,000 bpd from its production. 

WTIC could be heading higher to test the $53.96 per barrel technical level on expectations that OPEC may ask non-OPEC countries to cut more than 600,000 bpd when they meet next week. The crude oil rally could be short-lived though, as crude prices are now bumping into the average breakeven prices for U.S. shale producers, such as Eagle Ford, Bakken and Niobrara, which are about $48 and $58 per barrel, according to the Financial Times. The breakeven prices for Brazil deepwater and Canadian oil sands are also ranging in the same neighborhood of between $50 and $55 per barrel.

The EIA weekly U.S. oil inventory report on Wednesday showed that domestic crude supplies fell by 900,000 barrels to 488.1 million barrels, excluding the Strategic Petroleum Reserve, in the week ending November 25, compared to S&P Global Platts analysts’ expectations for a decline of 250,000 barrels. The American Petroleum Institute (API) inventory data on Tuesday showed a U.S. crude inventory decrease of 717,000 barrels. 

Separately, the EIA said the weekly U.S. crude oil production rose 9,000 bpd for the week ending November 25, to 8.699 million bpd. Weekly U.S. crude oil output has fallen about 9.48% from the peak level of 9.61 million bpd during the week ending June 5, 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count rose by another 3 to 477, compared to 316, when the rig count hit the low on June 6, 2016. 

The best performing S&P 500 sectors for the week were Energy and Financials, up 2.64% and 0.86%, respectively. The worst performing sectors for the week were Information technology and Consumer discretionary down 2.92% and 1.99%, respectively. 

S&P 500 Summary: +7.24% YTD as of 12/02/16
Barclay Hedge Fund Index: +6.12% YTD 

Outperforming Sectors: Energy +21.92% YTD, Financials +16.58% YTD, Industrials +16.53% YTD, Materials +14.25% YTD, Telecommunication services +8.93% YTD and Information technology +8.26% YTD.

Underperforming Sectors: Utilities +7.23% YTD, Consumer discretionary +3.94% YTD, Consumer staples –0.29% YTD, Healthcare –5.36% YTD, and Real Estate –10.79% YTD.

Disclosure: We are long AGN.

S&P 500 ANALYSIS