U.S. markets overcame a dramatic mid-week selloff, to deliver the first weekly gain of what has been a difficult start to the year. The S&P 500 began the week by breaking the October 2014 ‘Ebola low’, touching -15% off its May 2015 high, only to rebound with a 5% rally to finish the week. In what seemed to be an oversold market from a technical standpoint, stocks received a strong bid in this year’s downward trending market. Volatility centered on global growth concerns has been pronounced as evidenced by outright bear markets in small caps, commodities, and several international equity markets. Conversely, oil finally got a bid last week, closing up 9% to $32.19 per barrel. Interestingly, WSJ Market Data Group pointed out that two of the last three times oil rallied 9% in a week coincided with equity market bottoms (March 2009, August 2015).
News on the week included stimulative comments from both European and Japanese central bank officials, which may be followed up by Fed officials this week as they release the FOMC rate decision on Wednesday. Central bank narrative, China’s economic profile, and energy market indicators seem to be driving risk sentiment. Meanwhile, U.S. economic fundamentals remain moderately constructive despite the double whammy of a strong U.S. dollar and drastically lower energy investment spending. Healthy upward trends in housing starts & permits, near all-time highs in truck tonnage, accelerating loan growth, optimistic consumer economic sentiment (Gallup), and an encouraging trend in last week’s Conference Board release of Leading and Coincident Economic Indicators (LEI/CEI ratio) are working to counterbalance a new uptrend in weekly jobless claims in place since the Fed’s December decision to hike short term interest rates.
