Markets ended a rollercoaster week on an upbeat note, giving the S&P 500 its biggest weekly gain in nearly two years and erasing December losses.[1. http://www.cnbc.com/id/102284110] Markets were pulled in different directions by several factors, including central bank actions, a deep slide in the Russian ruble, and further gyrations in oil markets. For the week, the S&P 500 gained 3.41%, the Dow grew 3.03%, and the Nasdaq added 2.40%.[2. https://www.google.com/finance?chdnp=1&chfdeh=0&chdet=1419173920056&chddm=1955&cmpto=INDEXDJX:.DJI;INDEXSP:.INX;INDEXNASDAQ:.IXIC&cmptdms=0;0;0&q=INDEXDJX:.DJI,INDEXSP:.INX,INDEXNASDAQ:.IXIC&ntsp=0&ei=6dOWVMH5FpS28gbFyIG4Dg]
Falling oil prices stoked additional volatility last week as investors grappled with the potential effects of cheap oil. Oil fell for the fourth straight week, ending with U.S. benchmark WTI at under $60/barrel.[3. http://www.cnbc.com/id/102282630] Gasoline prices followed the decline, putting the national average at $2.409 on Sunday.[4. http://fuelgaugereport.aaa.com/todays-gas-prices/ (As of 12/21/14)] Domestically, low gas prices are a net win for U.S. consumers who suddenly have more discretionary income to spend.
However, Russia, one of the world’s major oil producers, felt the sting of falling oil prices. The Russian economy, which has been battered by economic sanctions over Ukraine, is in real trouble. Nervous currency traders caused a run on the Russian ruble, which fell an alarming 19% within one 24-hour period last week.[5. http://www.businessweek.com/articles/2014-12-16/no-caviar-is-not-getting-cheaper-everything-you-need-to-know-about-the-russian-ruble-collapse]. Russia’s sinking economy is potentially a threat to its major trading partners, who depend on Russian demand for their goods. One report indicates that one in eight German companies are considering a withdrawal from Russia because of the risk represented by its unstable economy.[6. http://rt.com/news/216447-ruble-threat-german-economy/] A deteriorating economic situation could also escalate geopolitical tensions over the Ukraine.
Investors cheered at the news that the Federal Reserve is likely to hold interest rates low for at least the first few months of 2015.[7. http://www.cnbc.com/id/102284110] Though the Fed feels confident enough about economic growth to raise rates next year, policymakers intend to remain “patient” by taking a slow approach to rate hikes.[8. http://www.newsweek.com/us-growth-gives-federal-reserve-confidence-293049] To translate: The Fed thinks that the economy is on track but doesn’t want to spook investors by hiking up rates too soon.
Looking ahead, it’s hard to know which way markets will go in the final weeks of the year. Historically, December has been a good month for equities, and stocks could be poised to go higher.[9. http://www.usatoday.com/story/money/markets/2014/11/30/dec-market-report-santa-claus-rally/70098600/] In the plus column, the Fed promises continued low rates, plunging gas prices are putting more dollars in consumers’ wallets, and spirits about the future are high. In the minus column, investors could be jittery about the knock-on effects of falling oil and may be feeling uncertain about 2015.
As 2014 draws to a close, we want to thank you for the privilege of serving you this year. We are honored by the trust you place in our firm and sincerely appreciate the opportunity to work with you. We are excited about what 2015 will bring and look forward to continuing to support you and your family for many more years to come.
Monday: Existing Home Sales
Tuesday: Durable Goods Orders, GDP, Personal Income and Outlays, FHFA House Price Index, Consumer Sentiment, New Home Sales
Wednesday: Jobless Claims, EIA Petroleum Status Report
Thursday: U.S. Markets Closed for Christmas Holiday
Weekly jobless claims fall. Claims for new unemployment benefits and the four-week moving average both fell last week, indicating that the labor market is doing well in the fourth quarter.[10. http://www.cnbc.com/id/102279896]
Service sector growth slows in December. Activity in the service sector – which contains industries like financial services, retail, and food service – grew at the slowest rate since February. Slow growth could take a bite out of fourth-quarter economic growth.[11. http://www.cnbc.com/id/102279924]
Inflation falls most in six years in October. Domestic prices for goods and services fell by the most in six years as gasoline prices plummeted. However, stripping out volatile food and fuel prices, core consumer prices edged slightly up.[12. http://www.cnbc.com/id/102275854]
Mortgage rates fall, but buyers don’t bite. Mortgage rates dropped to their lowest level since May 2013, but homebuyers don’t seem to be interested. The takeaway? Though interest rates may rise next year, lower mortgage rates can still be found.[13. http://www.cnbc.com/id/102274680]
Markets rallied for the fifth week in a row on global and domestic good news, sending the Dow and S&P 500 to new record highs. For the week, the S&P 500 gained 1.15%, the Dow grew 0.99%, and the Nasdaq added 0.52%.[1. http://goo.gl/xwjTno]
Investors cheered on Friday when China’s central bank made its first interest rate cut in more than two years, stepping up its efforts to spur growth in the world’s second-largest economy. Slowing factory growth and a stalled housing market – both major factors in China’s historical growth – may have been behind the bank’s surprise move.[2. http://www.cnbc.com/id/102183369]
The European Central Bank also jumped on the stimulus bandwagon and began purchasing asset-backed securities in an effort to encourage banks to lend money and boost Eurozone economic growth. While this measure is similar to the bond-buying programs implemented by the Federal Reserve (and pioneered by the Bank of Japan), it falls short of quantitative easing, which would require the ECB to take on the risk of buying the sovereign debt of its member countries. The news caused the euro to tumble; policymakers probably hope further weakness in the euro will lead to export and manufacturing growth.[3. http://www.cnbc.com/id/102183387]
Why is all this good news for investors? These assertive moves by major players in the global financial scene are a hopeful sign that they are prepared to do what it takes to put the global economy back on track. While the U.S. is making big strides toward a healthy economy, Europe and China are lagging behind and their central banks may need to make further moves to boost growth.
On our side of the pond, last week’s unexpectedly low new unemployment claims report showed that the labor market continues to make gains. At this point, weekly claims for new unemployment benefits have been below 300,000 for ten straight weeks, which is a fantastic sign for the job market.[4. http://www.cnbc.com/id/102200071] Continuing claims also fell to the lowest level since 2000, indicating that many jobless Americans are moving off the unemployment rolls, though there could be some seasonal hiring factors at play.[5. http://www.reuters.com/article/2014/11/20/us-economy-joblessclaims-idUSKCN0J41FX20141120]
Looking ahead, the holiday-shortened week is packed with economic data and analysts will be looking closely at the next Q3 Gross Domestic Product estimate as well as some important consumer sentiment indicators. Thursday kicks off the critical holiday shopping season and investors will be watching to see if hopes for the retail sector can turn into reality.
Monday: Dallas Fed Mfg. Survey
Tuesday: GDP, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: Durable Goods Orders, Jobless Claims, Personal Income and Outlays, Consumer Sentiment, New Home Sales, Pending Home Sales Index, EIA Petroleum Status Report
Thursday: U.S. Markets Closed For Thanksgiving Holiday
Friday: Chicago PMI
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Existing home sales jump in October. Sales of previously owned homes rocketed to their highest level in more than a year, suggesting that the housing market may be on the rebound. Improvements in the labor market and lower mortgage rates may boost further sales activity.[6. http://www.cnbc.com/id/102203875]
Oil settles higher. Actions by China’s central bank and rumors that OPEC could cut oil production sent crude oil slightly higher last week. With prices so low, any bullish sentiment could start an oil rally, though conditions remain optimal for continued low prices.[7. http://www.cnbc.com/id/102206295]
U.S. factory production falls in October. Cutbacks at U.S. automakers caused industrial production to fall unexpectedly in October, indicating that manufacturing may have gotten off to a slow start in the fourth quarter.[8. http://www.businessweek.com/news/2014-11-17/industrial-production-in-u-dot-s-dot-unexpectedly-dropped-in-october]
Housing starts fall in October, but building permits surge. Construction on new houses fell unexpectedly last month, continuing its oscillation of the past few months. However, permits for new construction jumped to a 6-1/2 year high, suggesting that builders are optimistic about their future prospects.[9. http://www.cnbc.com/id/102198479]