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Op-Ed: The S&P 500 index gained 3.3% for the week

The S&P gained 3.3 percent for the week, its best showing since December. The Dow rose 3.4 percent for the week and the Nasdaq added 3.6 percent. And now we begin the Santa Claus rally on Wall Street, which kicks off with the Turkey Shoot. For 35 years prior to 1987, the Wednesday before and the Friday after Thanksgiving combined were up 33 times.

The only declines were in 1964 and 1965. Subsequently, this trend changed. In the 28 years since 1987, there have been 12 declines and 16 advances. As Thanksgiving bullishness lost steam in 1987, the rally afterwards occurred more frequently.

Since 1987, DJIA has logged gains in 22 of 28 years from the close on Friday after Thanksgiving to year-end. The S&P 500 is up 0.5 percent in November and 1.5 percent thus far in 2015. There are 28 trading days remaining in 2015.

And going back to 1950, December is the best month of the year for the S&P 500 with the final 30 days of a year producing a mean gain of 2.36 percent. There could still be a black swan or some other exogenous event. This does not mean that we are guaranteed a rally, only that the probabilities are good.

ECB President Mario Draghi says the European Central Bank is prepared to deploy its full range of stimulus measures to fight low inflation. The comments from Draghi, echoed by other top ECB officials, suggest support among the highest ranks of the central bank for expanding its quantitative easing program and cutting the deposit rate further.

Under the ECB’s bond buying program which was launched in March, the central bank is buying $64 billion a month in mostly government bonds. It is slated to run at least through September 2016, but many analysts expect the ECB to extend the program beyond this date.

Federal Reserve Vice Chairman Stanley Fischer says the Fed has done everything we can to avoid surprising the markets and governments” about the first hike in interest rates in nine years. It’s looking more and more like a December rate hike is a done deal, but Fischer said no final decisions have been made and officials continue to scrutinize the data. Fischer said it remains to be seen whether the emerging market countries in Asia and the world are sufficiently prepared for the potential capital flows and market adjustments so that there are no major macroeconomic consequences.

Today, St. Louis Fed President James Bullard said “The economy is going to go into a boom period,” citing the unemployment rate, which is currently 5 percent. Bullard added that the U.S. labor market was “basically back to normal” after the 2007-2009 financial crisis.

But the Fed should not repeat what it did during the 2004-2006 tightening cycle, when it raised rates at 17 consecutive meetings, and Bullard emphasized that policymakers should be more “flexible and reactive” to data this time. Bullard also said the persistence of low real interest rates was “a puzzle,” echoing comments he made last week in a speech titled “Permazero”, where he entertained the possibility the United States is entering an era of permanently low rates.

It probably isn’t that big a puzzle. Demand has remained at low levels as fiscal policy contracted. Even where monetary policy produced some stimulus, it was counterbalanced with austerity. Corporate America has been on a stock buyback and financial engineering binge which cut investment in R&D and innovation and capital expenditures. The Great Recession was a knife in the back of workers and even though jobs have come back, wages have not.

As the global economy contracted, investors looked to the safe haven of the dollar and Treasuries, which pushed down exports and also kept a ceiling on rates. The financial industry has grown even larger than before the financial crisis, and it continues to be a giant black hole of derivatives and shadow banking that swallows’ productivity. I could go on, but it isn’t a puzzle.

The House of Representatives passed legislation to increase oversight over the Federal Reserve that includes a provision that would require the central bank to follow a mathematical rule to set interest rates. In May, the Senate Banking Committee already passed Republican-backed legislation to increase oversight of the Fed, but that measure doesn’t require the Fed to follow a mathematical rule.

China’s yuan may enter the IMF’s benchmark currency basket at a lower weighting than previously estimated as the institution considers making weights less related to export volumes and more dependent on financial flows. Such a change would give the renminbi a lower share in the basket than under the current formula. IMF policymakers are expected to vote on the currency’s inclusion to the Special Drawing Rights basket on November 30.

The leading economic index jumped 0.6 percent in October after falling in the two prior months, signaling a pickup in growth after a soft patch during the late summer and early fall. The leading economic index is a weighted gauge of 10 indicators designed to signal peaks and valleys in the business cycle.

Greece’s parliament has backed additional reforms needed to unlock €12-billion-euro from its latest bailout which will help recapitalize the country’s struggling banks and pay off overdue government debts.

Gunmen attacked a hotel in Mali in Western Africa and killed dozens of hostages. The attackers held 140 guests and 30 staff members before a counter-assault by Malian security forces, assisted by the US military, freed the hostages. The death toll is unclear but at least 27 bodies have been found in the hotel. A jihadist group based in northern Mali affiliated with Al-Qaeda, claimed responsibility.

In the past few days, clear signs have emerged showing that the terrorist attacks have had a big economic impact on Paris – one of the most visited cities in the world. A survey by a French hotel and restaurant operators’ union, suggests that sales in the city’s cafes and bars during the past week are down 44 percent on the same period last year, while hotels have suffered a 57 percent drop in business. Air France has so far refused to comment on passenger numbers and cancellations bound for Paris, but low-cost airline EasyJet said that travel to the French capital has plummeted.

The U.S. Treasury Department on Thursday took new steps designed to discourage corporate inversions, or deals that allow companies to move their legal address abroad to avoid taxes. Treasury Secretary Jacob Lew said additional steps were planned but also called on Congress to address the issue.

Will the new rules derail a Pfizer-Allergan deal? Maybe not. Allergan and Pfizer are considering structuring a merger of the drug companies so that it is an acquisition of the much bigger Pfizer by the much smaller Allergan.

Nike is buying back $12 billion worth of itself. After the market closed on Thursday, Nike announced a $12 billion stock-repurchase authorization, a 14percent dividend hike, and a 2-for-1 stock split, which will go into effect on December 24.

Gap slashed its outlook. Gap announced that sales fell 3 percent year-over-year to $3.86 billion. Comparable-store sales across the company’s brands — Gap, Banana Republic, and Old Navy — fell 2 percent. Earnings came in at $0.63 per share, which was right in line with expectations.

Abercrombie & Fitch crushed expectations on profits, revenues, and same-store sales, sending the shares up by as much as 20 percent in early trading. Ross Stores shares moved higher, after the off-price retailer also reported better-than-expected earnings.

Tyson Foods plans to close two aging prepared-food plants, affecting 880 jobs, in the face of prohibitive renovation costs and changing demand. The closures come as Tyson continues to remake itself after its 2014 acquisition of Hillshire Brands. The company expects to cease operations at a pepperoni plant in Wisconsin and a prepared foods facility in Illinois during the second half of the year ending October 1.

Chipotle is having problems again. A new round of E. Coli infections has hit 45 people in 6 states: Washington, Oregon, California, Minnesota, New York, and Ohio. Sixteen of those people had to be hospitalized and no deaths have been reported. This follows an outbreak at the beginning of November when 22 people in Washington state and Oregon fell ill.

Massachusetts is barring people under the age of 21 from playing daily fantasy sports. While the decision limits a large demographic within the fantasy sports industry, it stops short of following the lead of NY Attorney general Eric Schneiderman, who recently declared daily fantasy “illegal gambling.” The proposals would also ban fantasy competitions based on college sports, prohibit promotions on high school and college campuses and bar anyone connected to professional sports, including athletes and agents.

Tesla Motors is voluntarily recalling all of its 90,000 Model S sedans to check for a potential problem with seat belts. An owner in Europe had an issue with a bolt holding the seat belt system in place coming loose. Tesla said the owner wasn’t involved in an accident and has determined the flaw was an installation issue.

Tesla shares dropped today, but they should have gone up; this was a voluntary recall, unlike GM which fought a recall for faulty ignition switches even as people died, or all the models using Takata airbags which exploded in a shower of shrapnel while car companies denied the problem, or VW which cheated on emissions. Tesla was proactive. No one was injured. The real question is why other car companies can get away with murder.

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