For the week ending March 18, 2016, the stock market finished up again (five straight weeks) and the Dow and S&P 500 are now positive for the year. The surge in the stock market was due to monetary programs (rate reductions and quantitative easing) by central banks, helped by rising crude oil prices. In other news: the Fed lowers rate hike forecasts; consumer sentiment falls in March; and, the debate over free trade rages on. Below is a recap of the markets for each day of the week.
The markets were fractionally mixed on Monday as oil prices drop. Oil declined -$1.12 to $37.37. The Dow gained fractionally to 17,229; the S&P 500 declined fractionally to 2,020.
On Tuesday, the markets were again fractionally mixed as a Fed rate hike seems unlikely. Oil dropped -$0.65 to $36.72. The Dow gained fractionally to 17,251; the S&P 500 fell fractionally to 2,016.
The markets rose on Wednesday as the FOMC cut in half the forecast of rate hikes this year. Oil rose $1.88 to $38.60. The Dow gained 0.4 percent to 17,326; the S&P 500 gained 0.56 percent to 2,027.
The markets on Thursday rose sharply on the FOMC news, solid economic data, and a sharp rise in oil prices. Oil rose $3.07 at $41.67. The Dow rose 0.9 percent to 17,481; the S&P 500 rose 0.66 percent to 2,041.
The markets Friday rose nicely despite a drop in oil prices. Oil dropped -$0.54 to $41.13. The Dow rose 0.7 percent to 17,599; the S&P rose 0.44 percent to 2,050.
The U.S. stock markets rebound from the worst-ever start this year. The rally in crude oil together with a more dovish Fed has the led the Dow and S&P 500 to finally end in positive territory for 2016. It took five straight weeks of gains to accomplish this with the Dow up 1.0 percent, and the S&P 500 up 0.3 percent this year. Central banks drove the surge along with the Fed scaling back interest rate hikes. A rally in crude oil prices helped with a 50 percent gain from its low last month. The tone of the market has clearly improved since early last month when investors were concerned the economy was heading into a recession.
Fed cuts rate hike forecast in half for 2016. The FOMC minutes indicated a more dovish posture and a forecast of just two rate hikes (from four) for 2016 and just two hikes in 2017. The Fed also decreased its GDP forecast to 2.2 percent (from 2.4 percent) for this year. The Fed is still concerned about risks in the global economy. The next expected rate hike (by futures traders) is likely to be June. The dovish tone by the Fed caught Wall Street off guard; it expected a more hawkish tone.
The Index of Consumer Sentiment reached 90 in March which is below expectations of 92.2, but up from the reading in February of 91.7. This reflects an easing in March largely due to increased concerns about the economy and rising crude oil prices. While consumers do not anticipate a recession, they now expect the economy will grow at a slower pace. An important element is despite the slower economic growth, consumers do not feel it will have an appreciable effect on the economy.
The debate on global trade agreements heats up as the subject is discussed during the presidential debates. The latest large company to move jobs out-of-country is Carrier. It plans to move its factory from Indianapolis to Mexico which will cost workers 1,400 jobs making furnaces and heating equipment. Workers in Mexico will earn just $19 per day vs. $19+ per hour here in the U.S. The argument for free trade is to remain competitive globally. However, reinstating a tariff would ensure that American jobs stay here; it is a small price to pay for ensuring a viable middle class that relies on a strong manufacturing base.
The bottom line: the economy is not nearly as fragile as recently believed. Inflation in services jobs is increasing while commodity prices are starting to rise. Consumer spending remains solid and the factory sector is poised to grow. We will see if these gains will continue for the remainder of this year.
The focus next week in the U.S. will be on housing with existing home sales reporting on Monday, the FHFA house price index on Tuesday and new home sales on Wednesday. Globally, the focus will be on the flash manufacturing indexes for March. In addition, the focus will be on the following: UK (Consumer Price Index, Producer Price Index, Retail Sales); Eurozone (PMI Manufacturing, Services & Composite); Germany (nothing); China (nothing); and Japan (PMI Manufacturing, Consumer Price Index).
Year-to-date the markets are mixed: Dow 1.0%; S&P500 0.3%; Nasdaq -4.2%.
The Markets for the past week were: DJIA up 2.2%; S&P500 up 1.4%; Nasdaq COMP up 1.0%.
Commodities (ETFs) for the past week were: Gold (GLD) up 0.98%; Silver (SLV) up 0.83%; Oil (OIH) up 12.79%; Dollar (UUP) down -3.33%; 30-year Bonds (TYX) rose 6 basis points to 2.67%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 14.02%. This reflects the rise in oil prices and the FOMC minutes released on Wednesday.
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 – Existing Home Sales
o Tuesday – PMI Manufacturing Index Flash
o Wednesday – EIA Petroleum Status Report, New Home Sales
o Thursday –Jobless Claims, Durable Goods Orders
o Friday – GDP
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.0 standard deviations or greater. Expect the price of the SPX to fall within 1974 and 2128 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.