Stocks Post Best Gain This Year
The major market indices finished the holiday shortened week solidly higher reflecting a firming in oil prices following an agreement by Saudi Arabia, Russia, Venezuela, and Qatar to freeze oil output at current levels.
February 22, 2016
| By Mike Schwager
Performance for Week Ending 2/19/2016:
The Dow Jones Industrial Average (Dow) gained 2.62%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 3.14%, the Standard & Poor’s 500 Index (S&P 500) tacked on 2.84% and the Nasdaq Composite Index (NASDAQ) surged 3.85%. Sector breadth was positive with all 10 of the S&P sector groups finishing higher. The Consumer Discretionary sector (+4.28%) led the way higher followed by Technology (-3.80%) and Industrials (+3.26%).
||Closing Price 2/19/2016
||Percentage Change for Week Ending 2/19/2016
||Year-to-Date Percentage Change Through 2/19/2016
*See below for Index Definitions
MARKET OBSERVATIONS: 2/15/16 – 2/19/16
The major market indices finished the holiday shortened week solidly higher reflecting a firming in oil prices following an agreement by Saudi Arabia, Russia, Venezuela, and Qatar to freeze oil output at current levels. While the deal fell short of an outright production cut, the move was viewed as a step in the right direction. Adding to the positive tone has reduced worries about negative interest rates in the US, a bit less fear about Eurozone banks following Deutsche Bank’s debt buyback announcement, and stabilization in China’s currency. In addition, Q4 earnings season has largely come to an end and results were generally better than feared.
The rebound last week is not that surprising in light of the fact that the market had become oversold and pessimism towards equities moved to extreme levels (a contrarian signal) in recent weeks. At the same time, the market’s valuation has moved lower, US economic data has been mostly resilient, and interest rate policy looks to remain supportive of risk assets for the foreseeable future.
Despite the rocky start to the year, we remain cautiously optimistic on the intermediate term outlook. While there certainly remains the potential for additional downside risk in the markets, 2016 still should shape up to be a better year than 2015. The US economy continues to move in the right direction, labor markets are healthy, wages are growing, consumer confidence is strong, and consumers should continue to benefit from lower energy prices.
The Week Ahead:
Quarterly earnings season continues to wind down with several high profile retailers scheduled to report during the coming week. These names include Dow-component Home Depot, as well as, Target and Lowe’s. On the data front, focal reports include the February PMI Manufacturing, existing home sales, the Conference Board’s consumer confidence survey, January new home sales, durable goods orders, the first revision to fourth-quarter GDP and the University of Michigan’s consumer sentiment survey. Fed Heads will be out and about with Richmond Fed’s Lacker, St. Louis Fed president Bullard, Atlanta president Lockhart and San Francisco President John Williams all scheduled to make speeches. Another event of interest will be the gathering of G20 finance ministers and central bankers on Friday and Saturday.
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.
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.
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”
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