This week was not for the faint of heart. With oil prices crashing and Russia unraveling, it looked like the stock market was ready for a gargantuan meltdown. The major indices had dipped below their 50-day moving averages, and December was feeling a whole lot more like October. Then we saw the bounce that somehow cleared the air, and here we are once again with the S&P 500 close to an all-time high. The jury is still out on how the stock market pulled the latest rabbit out of its hat, but the bullish crowd is not complaining as we closed out a tough week with strong gains.
So, how did the stock market manage to stage a magnificent bungee bounce when all of the chips were down and the odds were against it? The stock market seems to have taken a cue from the Super Hero movies that are so popular these days, and it somehow battles back and wins in the nick of time just when it seems doomed. Collapsing oil prices and a Russia on the verge of default are usually insurmountable foes. The rally we saw this week began even BEFORE the Fed’s Wednesday announcement, so you can see why it left most bulls scratching their heads.
The S&P 500 had fallen below both its 50-day moving average of 2,020, and it even lost the psychological 2,000 level. Things were looking bleak, and a fast dive to the S&P 500’s 200-day moving average of 1,945 seemed very likely. Russia raised its key interest rate from 10.5% to 17% in the dead of night, and oil somehow bounced soon after. It was almost as if the latest “global shocks” were reversed by new “global shocks.” Markets rallied, and we closed out the week with U.S. stocks solidly higher. For the week, the Dow was up 3%, the Nasdaq was up 2.4% and the S&P 500 was up 3.4%.
The Federal Reserve said very little in terms of what might have boosted stock prices, and oddly enough, it even sounded more hawkish in ridding itself of the wording of keeping interest rates low for a “considerable time” to instead becoming “patient” on any possible rate hikes. These word changes did not feel all that bullish, but the stock market certainly acted as if a new QE program had been announced. This week’s bounce was almost as impressive as the one we saw in mid-October, and the one worry is what will happen if we somehow STOP seeing these sorts of magical bounces.
It is that holiday time of year, so again, the bulls thoroughly enjoyed seeing the Santa Claus Rally reappear with Rudolph leading the charge higher. We are still not clear whether “Rudolph” was Janet Yellen, rising Russian interest rates or increasing oil prices, but something managed to spark this week’s barn-burner of a rally that papered over a dismal-looking scenario for global financial markets. Friday’s action left stocks only marginally higher for the day, but it was still an impressive close to an extremely bullish sort of week.
Where all of this upside buying “fuel” came from is a bit of a mystery. The late-October rally came without much fanfare other than comments from a Fed official, and this week’s moonshot did the same. There was not any one particular comment or moment, but it came out of nowhere just the same. Thursday’s 289,000 jobless claims and the 0.6% rise in the Index of Leading Economic Indicators may have helped, but those are not numbers that merit a 400-plus-point rally in the Dow. Again, the bulls are not complaining at all, but they are definitely wondering.
This week’s rally got us past something, though, and we are finally into the final two holiday-shortened weeks of the year. The major indices are sitting once again on respectable gains for the year, and fear levels and volatility have somehow vanished in a blink. Maybe the rest of December will act like a seasonal and bullish December after all. So maybe the bulls can finally sit back, sip some egg nog and enjoy the ride. There are nearly 40 college football bowl games to watch (wow!), so that will provide some welcomed distraction from the recently nerve-wracking financial markets.
Oil rallied this week in a big way, so that is not a looming threat for the time being, and the big rally in the U.S. stock market this week should also help calm market sprits and keep financial markets in a buoyant mood for the final two weeks of the year. The Gorilla wishes each and all a wonderful weekend, and it is a big relief to head into this weekend with global financial markets in a fairly calm mood. We will be back in action on Monday. Once again, a happy and mellow weekend to all!