For the week ending March 11, 2016, the stock market finished up for the fourth straight week as crude oil prices continue to rise. On a predominantly up week, both the Dow and the S&P 500 ended higher after some volatile days. In other news: the Fed may implement another rate hike soon; import prices fell less than expected; and, U.S. household net worth increased stock and housing prices continue to advance. Below is a recap of the markets for each day of the week.
The markets rose on Monday as oil dramatically increased. Oil rose $1.65 to $37.98. The Dow gained 0.4 percent to 17,073; the S&P 500 gained 0.09 percent to 2,002.
On Tuesday, the markets dropped on weak trade data out of China, a drop in oil prices, and weakening global demand. Oil dropped -$1.65 to $36.33. The Dow fell -0.5 percent to 16,983; the S&P 500 fell -1.12 percent to 1,979.
The markets rose on Wednesday as oil recovered its loss from yesterday. Oil rose $1.85 to $36.33. The Dow gained 0.2 percent to 16,999; the S&P 500 gained 0.51 percent to 1,989.
The markets on Thursday remained relatively flat as investors absorbed the ECB rate reduction and QE increase. Oil dropped -$0.16 at $38.02. The Dow dropped fractionally to 16,995; the S&P 500 rose fractionally to 1,990.
The markets Friday rose sharply as oil prices increased. Oil rose $0.47 to $38.49. The Dow rose 1.3 percent to 17,212; the S&P rose 1.64 percent to 2,022.
U.S. markets extend their rally for a fourth week as the energy sector recovers. An increase in crude oil coupled with a rise in European markets helped the U.S. markets rally. The S&P 500 is now up nearly 11 percent from February 11. Crude oil gained nearly 47 percent from a low of $26.21 a month ago after the IEA announced that the oil market has “bottomed out”. And the global markets rose sharply after the ECB cut rates and increased QE.
As the rally continues and market data improves, the possibility of a Fed rate hike has increased. The recent string of positive economic news, including a gain in household net worth and inflation, gives the Fed the ammunition it needs to adjust rates higher next week or in June. Just two weeks ago investors had concluded that there would not be any rate hikes this year; now the likelihood is a June hike. The U.S. added 242,000 jobs last month, which is far more than expected; and the unemployment rate remains at 4.9 percent (which is near full employment). Since 2010, nearly 14.3 million private sector jobs have been created. Consumer spending, which represents more than two-thirds of GDP, has posted its largest gain in ten months.
U.S. import prices fell less than expected in February. Prices fell 0.3 percent vs. an expected 0.6 percent. This is the eighth straight month that import prices fell; the smallest year-on-year drop since December 2014. This is largely due to the appreciation of the dollar, which has gained roughly 20 percent against other major currencies. As this appreciation in the dollar slows and oil prices stabilize, then import prices could start to rise and cause a rise in domestic inflation. Export prices fell 0.4 percent in February after sliding 0.8 percent in January.
U.S. households net worth rose due to both stock prices and home values rising. The increase in net worth added $1.64 trillion to the total wealth of American families, which now stands at $86.8 trillion. The increase in household net worth occurred as households added to their debt levels at an annual rate of 3.4 percent, as home values increased by $381.9 billion, and as stocks held by households rose in value by $259.1 billion.
The bottom line: the labor market remains solid since the last FOMC meeting in January, and inflation appears to be on the rise and likely to meet Fed targets. This gives the hawks at the FOMC the ammunition to pressure for another rate hike this year while the doves continue to point to global risks and market troubles (and the need to wait and see how the economy reacts).
The focus next week in the U.S. will be on the FOMC meeting announcement this Wednesday. There will be two important updates on inflation before the FOMC announcement: retail sales on Tuesday, and the consumer price index Wednesday morning. Globally, the focus will be central bank policies (BOJ, FOMC, BOE, SNB). In addition, the focus will be on the following: UK (Bank of England Monetary Policy Announcement, Labor Market Report); Eurozone (Industrial Production, Merchandise Trade, Harmonized Index of Consumer Prices); Germany (nothing); China (nothing); and Japan (Machine Orders, Merchandise Trade Balance).
Year-to-date the markets are down: Dow -1.2%; S&P500 -1.1%; Nasdaq -5.2%.
The Markets for the past week were: DJIA up 1.2%; S&P500 up 1.1%; Nasdaq COMP up 0.7%.
Commodities (ETFs) for the past week were: Gold (GLD) down -0.94%; Silver (SLV) down -0.27%; Oil (OIH) up 0.22%; Dollar (UUP) down -1.19%; 30-year Bonds (TYX) rose 5 basis points to 2.75%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 16.50%. This reflects the rise in oil prices and the ECB rate cut and an increase in its stimulus package.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is full:
o Monday – nothing
o Tuesday – PPI-FD, Retail Sales, Empire State Mfg Survey, Business Inventories, Housing Market Index, Treasury International Capital
o Wednesday – EIA Petroleum Status Report, CPI, Housing Starts, Industrial Production FOMC Meeting Announcement, FOMC Forecasts, Fed Chair Press Conference
o Thursday –Jobless Claims, Philadelphia Fed Business Outlook Survey, JOLTS
o Friday – Consumer Sentiment
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 1936 and 2111 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.