First of all, a very Happy President’s Day weekend to all. It has been a volatile, up-and-down year so far, and the bullish camp was celebrating in a big way on Friday as we saw the upside breakout in the S&P 500 hit an all-time high. The Dow topped 18,000 as well, the small-cap Russell 2000 hit a new record, and the Nasdaq reached its highest level since March of 2000. That is not a bad showing for a Friday the Thirteenth, and Friday’s lift was a stupendous way for the bulls to close out a week that was rife with political intrigue, global tensions and a whole lot of potential problems for the world’s financial markets.
The major “wild cards” in play this week were obviously Greece and Ukraine, and not surprisingly, we saw last-minute deal-making and compromise occur in both countries. The buzz in Greece was that it would “do everything possible” to put in place some sort of plan by Monday’s bailout extension plan deadline, which calmed fears of yet another new European Crisis. Playing hardball politics, the Greeks really stood up to the “Powers That Be” in the EU as well as the Germans, who really call the shots when it comes to EU financing initiatives. We just now have to wait until Monday for confirmation of this deal.
As for Ukraine, fighting continues between pro-Russian separatists and Western-supported Ukrainians, but a peace deal agreed on in Minsk late this week would put in place a cease fire as of this weekend. The hopes of avoiding an escalated “hot war” seem to be in place, and that news also gave global financial markets a big sigh of relief. Oil prices were up nearly 3% on Friday alone, so maybe the recent rise in the price of oil is helping Russia’s Vladimir Putin relax a bit and give second thoughts to allowing a “hot war” to escalate in Ukraine. Russia has been hit hard by the big drop in oil prices since last summer, so maybe the recent rise gives him some political cover and leverage at home. A cease fire resolution calms the situation down for the time being, so we will see what plays out in Ukraine next week.
U.S. markets are closed Monday for President’s Day, so we will not see if this upside breakout in the major indices has more juice until Tuesday. That is fine with the bulls, who are just happy to have headed into a long, three-day weekend with the S&P 500 at a new record. January saw the broader market fall by about 3%, but February is starting to look like a winner. Earnings have been decent, although economic news has been mixed, and that could potentially keep a lid on any blockbuster upside rally. The University of Michigan’s consumer sentiment for February came out on Friday, and its 93.6 showing was lower than both the expected 98.5 and January’s 98.1, so you have to wonder if Friday’s recent lift will be able to keep its upside momentum in motion.
Due out on Tuesday is the Empire State Index (New York region) as well as homebuilder sentiment, and then on Wednesday, we get the January Producer Price Index (PPI), Housing Starts, and Industrial Production. These should all offer more clues as to whether the new market highs are justifiable, and whether the economy is still continuing to improve. The global GDP slowdown fears are still in the spotlight, and with Europe, Japan and China showing economic weakness, the state of the U.S. economy has taken on a bit of a “high-profile” role. The last thing global financial markets want to see is Uncle Sam stubbing his economic toe, so bulls are hoping to see some strong economic news.
We also get the minutes from the Federal Reserve’s January FOMC meeting, and investors want to hear what Ms. Yellen and the gang said in depth about their hints at hiking interest rates. The buzz had been that the Fed might start raising rates as early as summer, although with January’s shaky markets, the thought is that the Fed might be wanting to wait until at least 2016 to even consider raising rates. Inflation is absolutely nowhere to be seen, so there is no rush in terms of “containing inflation.” If anything, global economies seem headed more in the direction of deflation. So again, maybe this means that the Fed will remain on hold with regard to rate hikes well into 2016.
You have to hand it to the Federal Reserve, though, that at least in terms of equity prices, it has hit a home run over the past six years. Who could have imagined back in March of 2009, when the S&P 500 hit 666, that it would be nearing 2,100 in March of 2015? That is quite an impressive run even if job growth and GDP growth have been sub-par when compared to most post-recession economic recoveries. A record high is still a record high, and you have few bulls complaining. The only problem with this great market performance is that six years is historically long for a bull market, and no one can quite predict just when the music might finally stop.
Oil prices have been one of the potential “global shocks” that many strategists have worried about over the past six or so months, but the recent rise in oil has calmed many of the fears that accompanied the oil price slide. Yes, the price decline has walloped the U.S. shale and fracking “miracle,” and there have been many layoffs in the U.S. Many rigs in the U.S. have closed as well, and this tilts the oil advantage back toward Saudi Arabia if and when prices spike again. But oil prices seem less like a danger right now, which might be why we have seen a resurgence in the stock market.
That said, enjoy President’s Day weekend! Spring is right around the corner, and hopefully the stock market can keep its “spring” going ever higher straight into summer. February is turning out to be a strong month, and it is great to see it run counter to the “As January Goes…” theme. Again the Gorilla wishes each and all a wonderful weekend, and we will be back in action on Tuesday!
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