Following the sharp three-day rebound that preceded the midterm election and the day thereafter, markets are consolidating gains in what I would view as constructive. The major averages are all playing tug-o-war with their 200-day moving averages, which will play out to some extent next week with some key economic data points to digest.

Friday’s session saw the S&P 500 struggling with a loss of 1.0%, as investors continue to digest Thursday’s policy directive from the Fed, which showed that the central bank remains on a path of gradual tightening. The dollar index rallied on the Fed policy statement, while bond yields have actually ticked lower, with the 2-year Treasury at $2.93% and the 10-year Treasury at 3.19%.

On the economic data front, the Producer Price Index for October was released Friday, showing a higher-than-expected increase of 0.6% (consensus +0.2%). The core reading, which excludes the volatile prices of energy and oil, also came in above consensus (+0.5% actual vs +0.2% consensus). The headline pressures will stoke concerns about pass-through inflation to consumers and, in turn, strengthen the Fed’s case for additional rate hikes.

The preliminary University of Michigan Index of Consumer Sentiment for November that came out last Friday held quite steady, edging down to 98.3 (consensus 98.0) from the final reading of 98.6 for October. The key takeaway from the report is that the stock market sell-off in October had no real impact on consumer sentiment, which was rooted more in favorable views about income expectations and job growth, which are key drivers of consumer spending. Preliminary indications of the holiday shopping season have estimates running as high as a record $1 trillion to be spent, which should bode well for the retail sector for year-end momentum.

Within the S&P sectors, the information technology (-1.8%), materials (-1.6%) and communication services (-1.5%) groups underperformed the broader market. Chip stocks have led the tech sector lower after key Apple supplier Skyworks Solutions (SWKS) issued Q1 earnings and revenue below consensus. Its lower guidance extends a disappointing trend from many semiconductor companies that have warned of weakening chip demand. Look for further rotation out of the chip stocks with the exception of Intel.

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Even with the last week’s snapback rally, investors have taken a defensive approach, as defensive-oriented sectors outperform and U.S. Treasuries rise. The consumer discretionary and utilities sectors have been on the receiving end of constant fund flows during these volatile times with a few consumer staples in the defensive mix. A few good names in these sectors — namely Johnson & Johnson, Merck, Ely Lilly, Proctor & Gamble, McDonalds, Pfizer, McCormick, Costco and Wal-Mart  are showing excellent relative strength.

Separately, WTI crude has continued to fall today, as it extends steep losses from its Oct. 3 high of $76.90/bbl. Crude is currently down 1.2% at $59.90/bbl and testing a key technical and psychological support level. The best exposure to the energy sector is through ownership in the refining stocks, where refining operations are printing money with gasoline and jet fuel in strong demand against cheaper crude inputs.

Heading into the new week, the market will be pretty much devoid of new catalysts to drive stocks dramatically higher or lower into what will be the Thanksgiving holiday weekend thereafter. Typically, Black Friday, the day after Thanksgiving, is when the market should begin to show the first signs of a year-end rally. By then we should already have an idea of whether there is a trade deal with China in the works.

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