For the mid-week ending March 30, 2016, the Dow and S&P 500 are up for the week. Both indexes are fast approaching all-time highs . In other news: Yellen’s dovish speech sends stock market soaring; consumer confidence rebounds; and, oil prices give up gains.
Stocks soared to their highest level in 2016. After a very rough start this year, the major stock indexes have reached new highs for the year. Both the Dow and the S&P 500 are positive for the year, up 1.7 and 1.0 percent respectively. There are three key reasons: first, Fed Chairman Janet Yellen’s speech on Tuesday calmed the markets; second, the increase in oil prices helped boost the energy market; and, third, concern over the global economy has eased.
Federal Reserve Chairman Janet Yellen’s speech has soothed the markets. The dovish tone of her speech on Tuesday assured a ‘cautious’ path to normalization. Yellen said it is prudent for the Fed to move cautiously with rate hikes. The stock market reacted positively, with the Dow gaining 100 points on Tuesday and another 84 points Wednesday. Both the Dow and the S&P 500 have wiped out earlier losses this year. Helping the market rally was another decline in the U.S. dollar relative to other currencies which will help commodities (like oil) and sales and profits of multinational companies.
Consumer confidence rebounds in March. Reflecting more confidence among American consumers as the stock market rebounded from losses earlier this year, the index of consumer confidence jumped to 96.2; this beat Wall Street expectations of 94.2. This suggests that the slowdown in consumer spending is likely to be short-lived. Consumer confidence hit a high of 103.8 in early 2015, hovering in the high 90s since.
Crude oil prices have given back their gains. As stockpiles of crude oil grow, crude oil prices (light sweet crude) dropped below $38 per barrel on Wednesday, snapping a five-week winning streak. This has also, for now, decoupled oil prices from stock prices. Gasoline futures also fell despite the decline in stockpiles, with prices dropping 1.2 percent in sympathy with oil.
If you’re trading options, it is suggested trading Put credit spreads for the remainder of the week at 1.75 standard deviations or greater. Expect the price of the SPX to fall within 2022 and 2107 (2 standard deviations) by this Friday.
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