A Bouncy Week for the Markets

December
07

Written by: Jon McGraw

Anyone looking at U.S. stock market performance last week might assume it was a pretty quiet week. They would be wrong. It was a very bouncy week. U.S. stock markets moved lower on Monday, rebounded on Tuesday and then appeared to suffer a one-two punch midweek that knocked indexes lower.

On Wednesday, the benchmark U.S. oil price sank below $40 a barrel as supply continued to exceed demand, according to The Wall Street Journal (WSJ). Analysts had expected stockpiles of crude oil, gasoline and other fuels to decline. Instead, stores increased to more than 1.3 billion barrels. The glut of fuel drove energy stock values down, and energy stocks led the broader market lower, according to WSJ.

Performance did not improve on Thursday. In part, this was because the European Central Bank (ECB) underwhelmed markets when it delivered economic measures that were less stimulative than many had expected. The Financial Times reported the ECB reduced rates and pledged to extend quantitative easing for six additional months, but it did not increase the amount of its bond purchases, which disappointed investors. Stock markets in Europe and the United States lost value on the news.

On Friday, a strong jobs report restored investors’ enthusiasm, and markets regained losses suffered earlier in the week, according to ABC News. The Department of Labor announced that 211,000 jobs were added in November, which was more than analysts had expected. Strong employment numbers made the possibility of a Federal Reserve rate hike seem more certain, and investors welcomed certainty. The ECB jumped into the good-news pool on Friday too, announcing it would expand stimulus measures if necessary.

The Standard & Poor’s 500, Dow Jones Industrial and Nasdaq indexes were all up for the week.

Data as of 12/4/15 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.1% 1.6% 1.0% 14.1% 11.3% 5.2%
Dow Jones Global ex-U.S. -0.7 -5.4 -7.7 1.4 -0.2 1.0
10-year Treasury Note (Yield Only) 2.3 NA 2.3 1.6 2.9 4.6
Gold (per ounce) 2.1 -10.0 -10.7 -14.0 -5.3 7.9
Bloomberg Commodity Index 0.7 -21.7 -27.2 -16.9 -11.9 -7.3
DJ Equity All REIT Total Return Index -1.2 1.0 2.2 11.1 11.7 7.1

Look into the Crystal Ball

It’s that time of the year. No, not the holidays. It’s the time when investors begin to consider pundits’ forecasts for the coming year. Here are a few of those forecasts:

“Flat is the new up” was the catchphrase for Goldman Sachs’ analysts last August, and their outlook doesn’t appear to have changed for the United States. In Outlook 2016, they predicted U.S. stocks will have limited upside next year and expressed concern that positive economic news may bring additional Fed tightening. Goldman expects global growth to stabilize during 2016 as emerging markets rebound, and Europe and Japan may experience improvement.

Jeremy Grantham of GMO, who is known for gloomy outlooks, is not concerned about the Federal Reserve raising rates, according to Financial Times (FT). FT quoted Grantham as saying, “We might have a wobbly few weeks … but I’m sure the Fed will stroke us like you wouldn’t believe and the markets will settle down, and most probably go to a new high.” Grantham expects the high to be followed by a low. He has been predicting global markets will experience a major decline in 2016 for a couple of years, and he anticipates the downturn could be accompanied by global bankruptcies.

PWC’s Trendsetter Barometer offered a business outlook after surveying corporate executives. After the third quarter of 2015, it found, “U.S. economic fundamentals remain strong, but markets and executives like predictability, and that’s not what we’ve been getting lately … Trendsetter growth forecasts are down, so are plans for [capital expenditure] spending, hiring, and more. It doesn’t help that we’ve entered a contentious 2016 election season …”

The Economist had this advice for investors who are reviewing economic forecasts: “Economic forecasting is an art, not a science. Of course, we have to make some guesses. The average citizen would be well advised, however, to treat all forecasts with a bucket (not just a pinch) of salt.”

Weekly Fun—Think About It

“Weather forecast for tonight: dark.”

George Carlin, American comedian