/perspectives/weekly-viewpoint/santa-comes-early-to-wall-street

Santa Comes Early to Wall Street

The major market indices finished the week broadly higher as investors applauded the Fed’s statement that they will be "patient" in deciding when to hike rates. The surge in stock prices in the days that followed the Federal Open Market Committee (FOMC) announcement underscores the importance of low/stable rates to investors.

December 22, 2014    |    By Mike Schwager

Performance for Week Ending 12/19/14:

The Dow Jones Industrial Average (Dow) gained 3.03%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 3.37%, the Standard & Poor’s 500® Index (S&P 500) finished up 3.41% and the NASDAQ Composite Index (NASDAQ) tacked on 2.40%. Sector breadth was positive with all 10 of the S&P sector groups finishing higher. The Energy sector (+9.74%) led the way followed by Materials (+5.00%) and Telecom (+3.77%).

Index* Closing Price 12/19/14 Percentage Change for Week Ending 12/19/14 Year-to-Date Percentage Change Through 12/19/14

Dow

17804.80

+3.03%

+7.41%

Wilshire 5000

21364.09

+3.37%

+10.96%

S&P 500

2070.65

+3.41%

+12.03%

NASDAQ

4765.38

+2.40%

+14.10%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 12/15/2014-12/19/14

The major market indices finished the week broadly higher as investors applauded the Fed’s statement that they will be "patient" in deciding when to hike rates. The surge in stock prices in the days that followed the Federal Open Market Committee (FOMC) announcement underscores the importance of low/stable rates to investors. Adding to the positive sentiment were tentative signs that oil prices may be trying to find a bottom, a strong rebound in the energy sector, and building confidence the European Central Bank (ECB) will initiate a quantitative easing program early next year. Seasonals were also likely at play and could continue to provide a tailwind to equity prices into year-end.

The assurance from the Fed helped (at least temporarily) take the focus off plunging oil prices. Oil prices have fallen over 47% from their mid-June highs due to weakening demand and rising supply. On the bright side of things, falling oil and gasoline prices should help lubricate consumer spending, and in turn the U.S. economy.  However, the darker side of lower oil is the negative impact on Energy company earnings and capital spending plans, as well as, the potential fallout from huge exporting nations (Russia) who rely on oil to fund a good portion of their economy. While oil prices have shown some tentative signs of stabilizing, the path of least resistance still seems to be lower, especially in light of OPEC’s reluctance to cut production and their statement that the market should ultimately be responsible for finding price equilibrium – stay tuned.

Fed Will be Patient
At the conclusion of last week’s FOMC meeting, the Fed issued new guidance indicating that they can be "patient in beginning to normalize the stance of monetary policy."  The Committee added that it saw the new guidance as "consistent" with its prior guidance suggesting that higher rates are still likely sometime in 2015.

The Fed also issued a new set of forward economic projections. The committee now sees the unemployment rate dropping to a range of 5.2-5.3% (down from 5.4-5.6% projection in September) by the end of 2015. Their GDP growth estimate for 2015 was unchanged at 2.6-3.0% while core inflation is projected to come in at 1.5-1.8% (down from the September forecast of 1.6-1.9%). The Fed also downwardly revised their projection for their main policy lever—the Fed Funds rate—suggesting a modestly more accommodative path. Currently the Fed Funds rate stands at 0-0.25% but the median rate is projected to rise to 1.125% by the end of 2015 and 2.50% by year end 2016. These estimates are slightly lower than the September projections of 1.375% and 2.875%, respectively.

The Week Ahead:
The U.S. equity and bond markets will close early on Wednesday and will be closed on Christmas day. U.S. financial markets will operate on normal hours on Friday. Due to the holiday shortened week, data flow will be front end loaded. On the economic front, focal reports include November existing home sales, the final revision to third-quarter GDP, November personal income/spending, November durable goods orders, November new home sales and the University of Michigan’s final December consumer sentiment survey. There are no members of the Fed scheduled to speak during the week and the earnings calendar will be relatively quiet through the remainder of the year.

This will be the last Viewpoint for 2014.  Wishing you a Happy Holiday and a Prosperous and Healthy New Year.


Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor’s 500® Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

Past performance is no guarantee of future results. Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

 

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