The big news today came from the fourth-quarter profit reports from large financial companies such as DOW component JPM in addition to BAC and WFC. The market reaction to all of them was slightly positive…but the stocks have not risen enough to prevent the call strike prices with the largest open interest to expire worthless. This can be dangerous for an options buyer because historically over 80% of all options expire worthless. Today is a good example as the largest open interest at 24.50 and since has gone with the wind.  Therefore, if a person bought in anticipation of making money from these calls, they ended up with coal in their stockings…to use an analogy from the Christmas season that just ended.

The DOW lost 5 points today, the S&P 500 gained 4 and the NASDAQ climbed 26 points higher by the closing bell.  The NASDAQ peaked intra day at its all time high of 5,584 and settled back down to finish at 5,574. It was led higher by the newly rejuvenated FANG stocks (AMZN, FB, NFLX and GOOG). All four did well today ahead of their reports this coming week. NFLX ran up to an all time high of 133. 

Economic reports showed that the December P.P.I. showed a gain of 0.3% led by advances in gasoline prices plus food and energy. The core rate excluding those two items was only ahead by 0.1%.  December retail sales gained 0.6% led by automobile sales which showed the largest gain since April. Excluding autos and gas, sales overall were largely unchanged. For all of 2016, retail sales gained 3.3% versus 2.3% in 2015…certainly an encouraging sign for the markets.

Bond yields were higher once again with the 10-year Treasury Note up to 2.40% after falling as low as 2.31% yesterday…the lowest since November 30th.  The dollar continued to weaken against the Euro, which is now up to 1.063. Gold sold off a bit to end at $1,197 an ounce…still higher for the third straight week. Crude oil fell to $53.30.

Next week brings us more earnings reports from important companies: Tuesday – DOW components IBM and UNH plus AMD and CS; Wednesday – Financials C plus DOW component GS in addition to high-flying NFLX; Thursday – DOW component AXP plus BK, JBHT and UNP both of which are in the DOW Jones Transports; Friday – DOW component GE, plus KSU, COL and SLB. The markets are closed Monday in honor of Martin Luther King.

Donald M. Selkin

These are excerpts from Don Selkin’s Daily Market Notes, updated and abbreviated with permission from the Author. Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning.  The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report.  This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities.  This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm.   This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author.  These news sources include the following: Bloomberg Financial, Reuters, and the Associated Press.