Bulls were looking for good economic news and a strong finish to what was a very tough week, and all that they got was one of the two. The government’s employment report showed 252,000 newly created jobs in December, which topped economist estimates of 230,000. In addition, we saw the unemployment rate fall from 5.8% to 5.6%, but neither number was enough to bring buyers back in a big way. The jobs numbers were solid, but the stock market still slid on Friday, leaving the S&P 500 about 0.7% lower for the week.
It was not all that bad of a week, though, and the fact that we ended only slightly lower was a plus. Falling oil prices continue to weigh on confidence levels, and it is preventing any sort of optimistic rebound in equity prices. Oil slid again on Friday, and light sweet crude touched fresh multi-month lows down near $48 per barrel. As expected, the global GDP slowdown worries were back in the forefront, so we will just have to wait and see if these worries play out in the weeks ahead.
The U.S. government jobs report was great to see, and that kept buyers in the ball game. What really did fire things up this week, however, were the comments from Chicago Fed President Charles Evans. His comments that the Fed might postpone rate hikes until 2016 set in motion the impressive rally that painfully rattled the bearish camp. Three-hundred point rallies in the Dow work quite well in shifting bearish opinion, and that was exactly what we saw this week. The Federal Reserve is closely watching the equity markets, and just seeing their “seal of approval” this week for higher stock prices was encouraging to the bulls.
Falling oil prices and global GDP concerns suggest that deflationary pressures are squarely in place, so having the Fed make it clear that it has no desire to raise interest rates (per Charles Evans) is huge. The Fed showed its hand this week, and we can forget about phrases like “considerable time” and “patience” on rate hikes. It seems more likely that the Fed will NEVER raise rates, and while the stock market might like that news in the short run, no one is quite sure where this whole “Grand Plan” ultimately leads. Again, time will tell, and we will just have to see how this all plays out.
This “New Year” is off to a bumpy start, and actually, that might be good for the bullish crowd. Too much optimism in any bull market is a danger sign, and while we have seen our share of both optimism and pessimism, this New Year has greeted us with a whole new set of worries. The terror attacks in France this week remind us that the world is still a dangerous place, and that the new “global shocks” are always waiting in the wings. Let’s just hope the global shocks remain quiet, small and contained.
As for the stock market, it will take its cue from earnings, oil prices, interest rates and the Federal Reserve. Earnings and GDP growth in the U.S. need to stay strong, which is the challenge facing the economy and the stock market as we move further into 2015. An accommodative Fed that seems ready to help is always helpful, but REAL economic growth would be preferable. What if the Fed actually HAD to raise interest rates to cool down an over-heated economy? Now that is a thought for contemplation this weekend!
This “New Year” is in motion, and it is likely that this one could make for a “wild ride.” The market gyrations we have seen in the first two weeks of trading all but guarantee that this might be a strange year for investors. That said, the Gorilla wishes a restful weekend to all, and get ready for the challenges that could come in 2015. Happy weekend to all!