For the week ending January 22, 2016, the stock market finally reversed and posted strong gains. For this past week, both the Dow and the S&P 500 were down around -3.5 percent on Wednesday before reversing and ending the week in the black for the first time this year; the Dow was up 0.70 percent, the S&P 500 was up 1.40 percent, and the Nasdaq was up 2.30 percent. In other news: leading indicators indicate weakness in the economy; U.S. existing home sales rebounded strongly in December; and, and low gasoline prices lift Main Street. Below is a recap of the markets for each day of the week.
The markets were closed on Monday for Martin Luther King Jr. Day.
On Tuesday, the markets rose after a choppy session on poor economic data from China. Oil settled around $29.50. The Dow rose 0.2 percent to 16,016; the S&P 500 rose 0.05 percent to 1,881.
The markets dropped sharply on Wednesday as oil plummeted and overseas markets tanked. Oil dropped $0.50 to $29. The Dow dropped -1.6 percent to 15,766; the S&P 500 dropped -1.17 percent to 1,859.
The markets on Thursday rebounded gaining nearly half the loss on Wednesday on mixed economic news and rising oil prices. Oil rose $0.75 to $29.75. The Dow rose 0.70 percent to 15,882; the S&P 500 rose 0.52 percent to 1,869.
The markets Friday rose sharply as oil price surged on profit taking and bad East Coast weather. Oil rose $2.25 to $32. The Dow rose 1.30 percent to 16,094; the S&P 500 rose 2.03 percent to 1,907.
Stocks post first positive week of the year. U.S. stocks closed sharply higher on Friday as crude oil prices surged over 7 percent. Both the Dow and the S&P 500 indexes closed above their key levels of 16,000 and 1,900 respectively as oil topped $32.19 per barrel to settle at its highest level since January 8. Helping markets overseas were remarks by ECB President Mario Draghi that raised expectations of more stimulus during the central bank’s March meeting. Also, analysts are expecting an announcement from the Bank of Japan for additional easing next week.
Leading indicators dipped in December, according to the Conference Board on Friday. A key economic measure, the Leading Economic Index (LEI), fell -0.2 percent indicating weakness in both housing (housing permits) and manufacturing (new orders); this follows a +0.5 percent gain for the LEI in October. The LEI is closely monitored by the Fed and consists of 10 components, including new orders, stock prices, and average weekly initial unemployment claims. Analysts feel it is still too early to consider this drop as a precursor to a recession.
Existing home sales in December beat expectations. Home resales strongly rebounded with a surge in prices indicating that the housing market continues to recover. The National Association of Realtors reported Friday that home sales jumped to a record 14.7 percent with annual sales of 5.46 million units. Sales were boosted in part due to unseasonably warm weather and an improving labor market but constrained by the dearth of available homes.
Low gas prices lift Main Street. While low crude oil prices are causing jitters in the stock market, businesses outside of the energy sector are benefiting from plummeting fuel prices (like gasoline). The National Federation of Independent Business cites low energy costs as the third top issue for small companies in reducing operating expenses. Economists have been hoping that consumers will spend their fuel savings, and this is occurring as small businesses are experiencing a willingness by consumers to spend a little more on small items.
The bottom line: weakening economic data, along with little inflation, is likely delay any further interest rate hikes. The lack of inflation is the primary concern of the Fed, which should be reflected in the next FOMC meeting on the 26th and 27th of this month.
The focus next week in the U.S. will be will be the FOMC announcement on Wednesday where global risks and lack of inflation will be highlighted. Globally, the focus next week will be on the Federal Reserve (FOMC announcement) and the Bank of Japan. In addition, the focus will be on the following: UK (GDP); Eurozone (EC Economic Sentiment, Harmonized Index of Consumer Prices); Germany (Ifo Survey, Retail Sales); China (nothing); and Japan (Merchandise Trade Balance, Retail Sales, CPI, Unemployment, Household Spending, Industrial Production).
Year-to-date the markets are down: Dow -7.6%; S&P500 -6.7%; Nasdaq -8.3%.
The Markets for the past week were: DJIA up 0.7%; S&P500 up 1.4%; Nasdaq COMP up 2.3%.
Commodities (ETFs) for the past week were: Gold (GLD) up 0.88%; Silver (SLV) up 1.06%; Oil (OIH) up 1.25%; Dollar (UUP) up 0.66%; 30-year Bonds (TYX) rose 1 basis points to 2.82%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 22.34%. This reflects the rebound in oil prices and anticipated stimulus funds from the ECB.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is moderate:
o Monday – Dallas Fed Mfg Survey
o Tuesday – S&P Case-Shiller HPI, Consumer Confidence
o Wednesday – New Home Sales, EIA Petroleum Status Report, FOMC Meeting Announcement
o Thursday – Jobless Claims, Durable Goods Orders, Pending Home Sales Index
o Friday – GDP, International Trade in Goods, Consumer Sentiment
If you’re trading options, it is suggested trading Put or Call Credit spreads for next week at 2.5 standard deviations or greater. Expect the price of the SPX to fall within 1792 and 2027 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.