State of the Stock Market Analysis for the Week Ending January 17th, 2015 (Consumer Sentiment at 11-Year High 01-17-2015)Consumer Sentiment at 11-Year High

The three major stock market indices saw some brief, early downside on Friday morning, but they managed to reverse and close out the day with a much-needed win. The January Consumer Sentiment report led the stock market higher on Friday, as it came in at an 11-year high of 98.2 versus the 95.0 level that economists had expected. This number was also sharply higher than December’s 93.6, and it suggested that maybe consumers really ARE back in the game, and that more economic positives might be waiting in the wings as well. The great-looking sentiment number did not reflect the recent Swiss decision to de-couple from the euro, but it did show that optimism is alive and well on Wall Street.

Economic news for the week was generally positive, but despite Friday’s upside close, the major indices were still down for the week, with the Dow off by 1.3%, the Nasdaq down 1.5% and the S&P 500 about 1.2% lower. Oil prices actually rebounded by around 5% on Friday alone, leaving light sweet crude slightly higher for the week. The oil markets remain volatile, though, and despite Friday’s 5% lift, oil prices are still about half of what they were just over six months ago. The fallout from the meltdown in the price of oil is still one of the key themes of 2015, and it will likely remain as an issue that will be in the spotlight for investors in 2015.

Switzerland’s decision to un-peg its Swiss franc from the euro was the bombshell financial news of the week, though, and it caught global financial markets by surprise. The Swiss franc soared in value, while Swiss stocks sank, and the euro weakened dramatically. The question was why the Swiss chose to dump the peg to the euro and why it chose to do so this past week. Having your currency “pegged” to another currency seems comparable to tying your boat to another boat. The problem is that if the boat you are tied to sinks, then maybe your boat gets pulled underwater as well. Maybe the Swiss simply do not want to sink.

The Greek elections are set for January 25th, and the consensus is that a conservative, anti-euro party might gain in a big way from these elections. The recent terror attacks in Paris are helping increase fear levels among voters, and the worry is that “anti-EU” and “anti-euro” momentum could increase in a big way. The last thing the EU needs is for Switzerland to “unpeg” at precisely the same time that voter sentiment turns against the EU and the ECB. This has a potential for a bad outcome, so in some ways, it might explain why Switzerland chose last week to leave the EU party a bit early.

News of the Swiss decision to ditch the euro caused a big move in global cash toward “safe havens” like U.S. Treasuries, and we even saw the 10-year U.S. Treasury yield edge down to the 1.8% level. Likewise, most Swiss government treasuries and bonds actually have negative yields right now, so it is clear that a lot of money is quite a bit fearful of a lot of global themes that no one quite understands. It was actually calming to see oil prices rise for the week, after nearly two months worth of weekly declines.

Friday’s positive close for the broader stock market provided bulls with another plus, and that was helping the S&P 500 close out the week above the 2,000 level. The 2,019 close for the S&P 500 was still slightly below the S&P 500’s 50-day moving average of 2,032, but at least we did see a close above a level that is a big, round, psychological number. It was a positive way to go into the weekend, as well as a positive way to go into the second half of January. Bulls are hoping that Friday’s momentum will carry over into Tuesday. (Remember that Monday is a holiday.)

Earnings, oil and Europe are the key issues right now for the stock market, and as long as earnings can come in strong, oil can remain calm, and Europe does not unravel, then the bull market might get back into its six-year-old habit of moving ever higher. Let’s hope so. With that said, the Gorilla wishes each and all a relaxing and restful weekend. The New Year is off to a challenging start, so again, enjoy the quiet of the weekend. We will be back in action on Tuesday.

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