12-31-15 – Where is the market going?

Stocks opened modestly lower and are heading to session lows through midday on the last day of 2015. The S&P 500 is off 15.36 to 2048 and, for the year, has shed a modest 10.90 points.

Meanwhile, Treasury bonds are seeing strength this morning as equities falter and in the wake of disappointing jobless claims and manufacturing (Chicago PMI) data. The yield on the benchmark ten-year Treasury has dipped back to 2.27% and not too far from where it was a year ago.

Crude oil is up a nickel to $36.65 and down from $53 per barrel in December last year. Natural gas is a notable mover this week after gaining another 12c to $2.34 and now up from multi-year lows of $1.65 two weeks ago. Gold has added $1 to $1061 and set to finish 2015 well below the$1200 level seen a year ago.

CBOE Volatility Index (VIX) is up 1.15 to 18.44 and down .76 points, or just 2.3%, year-to-date.

End-of-year position adjustments and expiration of Dec 31^st Weeklys and Quarterlys are contributing to higher volumes in the options market today. A total of 1.5M calls and 1.7M puts traded in the first hour. Projected volume of 12M contracts for the day is much better than yesterday, but still 20% below the one-month daily average. iShares Longer-term Bond Fund (TLT) Mar 130 calls, SPDR Financials (XLF) Mar 21 puts, and SPDR 500 Trust (SPY) Dec Quarterly 205 calls are among the most actives.

Energy (XLE), this year’s worst performing sector, is seeing relative strength and posting modest gains Wednesday. Beyond that, losses are seen across the market, being led by declines in Utilities (XLU), Consumer Staples (XLP), and Technology (XLK).

Looking forward, 2016 will see a new President elected and the market has advanced in 14 of the past 16 election years since 1950. However, equities must also navigate three earnings reporting seasons between now and November and, like this year, the results are expected to be somewhat lackluster.

Meanwhile, Fed policy remains in focus as officials kicked off a tightening cycle in December and each economic data point will help set expectations for the pace of the rate hikes in 2016. The next meeting takes place on January 27, which incidentally, is during the peak of the fourth quarter earnings reporting season.

Therefore, don’t be surprised to see some pre-earnings jitters and rate anxiety begin to manifest early in 2016 (in fact, we are seeing evidence of that today) and lead to rocky trading during the month of January. Look for volatility to continue in energy and basic materials sectors as crude oil and the metals continue slipping amid anxiety about the bigger global economy. Sectors that performed well in 2015, including Consumer Discretionary, Healthcare, and Technology are likely to maintain a leadership role early next year as well.

Lastly, the S&P 500 Index is set to close out a choppy year down 10 to 15 points. 2045 is the immediate support level to watch and coincides with the 200 day moving average, as well as summer lows before the August breakdown. Beyond that, there’s not much support until the 2000 level. On the upside, a break above 2060 sets up a possible move to the next resistance area at 2078. Good trading and have a very Happy New Year!