U.S. stocks took a breather Monday, following last week’s record gains. Meanwhile, market professionals are watching several key developments this week: political turmoil in Greece, declining energy prices and holiday season consumer confidence.
Monday, the Dow Jones Industrial Average, which measures the share prices of 30 large industrial companies, edged down 2.33 points, or 0.01 percent, at 18,051.38; the S&P 500 stock index added 3 points, or 0.14 percent, at 2,091.75. The tech-heavy Nasdaq Composite gained 3.59 points, or 0.07 percent, to 4,810.62.
Here are three factors that will affect financial markets in the week ahead:
1. Political disorder in Greece could mean more eurozone turmoil.
Members of the Greek parliament failed to elect a president for the third time, sending the stocks plunging more than 10 percent on the Athens Stock Exchange. The results force Greece to hold a snap election on Jan. 25, which will be “unnerving” for the Euro zone.
“It gives those who would like to see Greece leave the eurozone -- and maybe even the EU -- a voice,” Stephen Guilfoyle, chief economist at Sarge986.com, said in a note Monday. “That possibly screws up Greece's bailout plans, but could very well delay any plans the [European Central Bank] may have to go ahead with a quantitative easing program where they would buy the sovereign bonds of member nations.”
The election was the third and final attempt by Prime Minister Antonis Samaras’ bid to push through his nominee for president, Stavros Dimas, a former European commissioner. Dimas secured 168 votes in the third round of voting Monday, short of the 180 needed to avoid a general election. After the vote, the Greek 10-year bond yield jumped more than 9 percent, as investors fled Greek bonds in favor of safe havens, including U.S. government securities. The capital flow sent the U.S. 10-year Treasury yield down four basis points to 2.22 percent, the lowest in a week.
2. It’s not just oil and gas, anymore. Natural gas prices are falling too.
As global oil prices continue to fall, natural gas is beginning to follow suit. Oil prices have fallen more than 45 percent in the last six months. Meanwhile, in the last month, prices for natural gas, the most prevalent heating fuel used in the U.S., have dropped more than 30 percent to $3.03 per 1,000 cubic feet from nearly $4.50 in late November. The continuing drop in energy prices bodes well for both Main Street and Wall Street, according to Adam Sarhan, founder and chief executive officer of Sarhan Capital.
“Remember, energy prices serve as an indirect tax on both consumers and businesses and the fact that energy prices are falling precipitously leaves a lot more disposable income in the pockets of both consumers and businesses. … That money tends to find its way back into the economy -- which should provide another ‘boost’ to GDP,” Sarhan said in a note to clients Monday.
Brent crude, the global benchmark, declined 1.35 percent Monday to $68.10 a barrel, for Feb. 15 delivery, on the London ICE Futures Exchange. Meanwhile, West Texas Intermediate crude, the benchmark for U.S. oil prices, fell more than 1 percent Monday to $53.16 per barrel, for Feb. 15 delivery, on the New York Mercantile Exchange, its lowest intraday price since May 2009.
3. Consumer confidence is expected to show gains as gas prices continue to fall.
Ahead on this week’s economic calendar, economists will sift through a series of housing and manufacturing data points, which market professionals expect to reveal more about the state of the U.S. economy. The numbers follow last week’s blockbuster U.S. gross domestic product report, which showed the U.S. economy grew at its fastest pace in 11 years.
The economic calendar is light this week due to a short holiday week. Tuesday, the Case-Shiller home price index, which tracks changes in home prices throughout the U.S., is released, along with the Conference Board’s Consumer Confidence Index. Last month, the Conference Board said its index of consumer attitudes fell to 88.7 from a downwardly revised 94.1 the month before. Consumers were somewhat less positive about current business conditions and the present state of the job market.
“Consumer confidence retreated in November, primarily due to reduced optimism in the short-term outlook,” Lynn Franco, director of economic indicators at the Conference Board, said in the report last month. “However, income expectations were virtually unchanged and gas prices remain low, which should help boost holiday sales.”
But a separate report last week revealed U.S. consumer sentiment jumped to its highest level in nearly eight years as cheaper gasoline prices boosted consumer optimism. Consumer sentiment rose to 93.6, its highest reading since January 2007, the University of Michigan's final December reading showed. The average price of gasoline across the U.S. is currently $2.27 a gallon, down $1.01 from a year earlier, Gasbuddy.com said.
Wednesday, the National Association of Realtors will publish its Pending Home Sales Index, a leading indicator of future existing home sales. The Chicago Purchasing Managers Index (PMI), a closely watched survey that tracks regional manufacturing activity, is issued Wednesday, ahead of Friday’s Institute of Supply Management Manufacturing Index (ISM), which monitors conditions in national manufacturing.
Although data last month showed U.S. factory activity growth slowed in November, the pace of growth slowed less than economists were expecting. The Institute for Supply Management said its index of national factory activity fell to 58.7 from 59 the month before. A reading above 50 indicates expansion in the manufacturing sector.
Here's the latest economic calendar for the week of Dec. 29. All listed times are EST.
Monday, Dec. 29
No major U.S. economic data scheduled.
Greece -- Presidential elections
Tuesday, Dec. 30
9 a.m. -- Case-Shiller home price index (October)
10 a.m. -- Consumer confidence index (December)
Wednesday, Dec. 31
8:30 a.m. -- Weekly jobless claims
9:45 a.m. -- Chicago PMI (December)
10 a.m. -- Pending home sales (November)
Thursday, Jan. 1
New Year's Day. No major U.S. economic data scheduled.
Friday, Jan. 2
9:45 a.m. -- Markit PMI (December)
10 a.m. – ISM Manufacturing PMI (December)
10 a.m. -- Construction spending (November)
Germany -- Markit Manufacturing PMI
European Union -- Markit Manufacturing PMI
United Kingdom -- Markit Manufacturing PMI