Stocks rallied nicely last week but it was another volatile week. The moves that are occurring in capital markets are wild. In fact, they are some of the largest moves (both up and down) we have seen in years. The wild moves are taking place across several asset classes with some of the largest swings occurring in: Stocks, Currencies and Commodities. For example, the benchmark S&P 500 soared over 11% in the past four weeks (after falling 7% two weeks earlier) which is not an insignificant sum. Crude oil surged nearly 50% since its Feb low. Currencies are also trading all over the map with large swings taking place in major global currencies such as the Euro, Canadian Dollar, USD, just to name a few. Typically, wild and loose swings are not healthy for an aging bull market. The one major wild card remains the easy money sloshing around the globe from central banks. Next week we have the Bank of Japan and The U.S. Fed. We’ll see what crazy bullets they try shooting from their easy money bazooka. We would be remiss not to note that all the beaten down areas of the market are trying to bottom and have bounced sharply over the past few months. If this continues, that will be bullish for stocks. Some of these areas are: Emerging markets ($EEM), Gold ($GLD), Oil ($XLE $OIH), Steel ($X), Transports ($IYT), Materials ($XLB, Junk Bonds ($JNK), just to name a few. The bull market is aging by any normal measure and the fact that it refuses to fall illustrates, for now, that the easy money still matters. Also keep in mind that bear market rallies tend to last between 4-10 weeks, we just finished our fourth week.
Monday-Wednesday’s Action: Stocks Quiet Ahead of ECB Meeting
Stocks opened lower but closed higher on Monday as the beaten down areas of the market continue to march higher. Oil prices surged over 5% on Monday and have vaulted over 42% since the Feb 11th, low! That is a massive rally over a short period of time. All the areas that have not been working for years are trying to bottom. It began with Gold ($GLD) a few months ago, now other areas are catching a strong bid. These areas include: emerging markets ($EEM), oil ($XLE $OIH), steel ($SLX), transports ($IYT), materials ($XLB), junk bonds ($JNK), just to name a few.
Stocks opened lower on Tuesday after disappointing trade data was released from China. China’s decline in exports deepened in February which strengthened the case that more stimulus may be needed. Chinese exports fell -25.4% year over year which illustrates how weak global demand is. This was the largest decline since May 2009. Chinese imports also plunged illustrating weak domestic demand.
Stocks rallied on Wednesday as the bull market celebrated its 7th anniversary. Once again, Central Banks can’t help but interfere with markets. Earlier today, the Bank of Canada held rates steady thanks in part to a huge rally in oil over the past month. Tomorrow investors will be looking at the European Central Bank (ECB) for more easy money. Next week the U.S. Fed is going to hold it’s next meeting. Remember, the end of the quarter is only a few weeks away…
Thursday-Friday’s Action: Wild Moves Post ECB
Stocks opened higher but closed lower on Thursday in a classic case of buy the rumor and sell the news. Before Thursday’s open, the European Central Bank (ECB) fired another shot from their easy money bazooka. The ECB cut their benchmark interest rate to 0% from 0.05%. They also expanded QE (money printing) to 80 billion euros a month, up from 60B. The bank also cut their bank deposit rate further into negative territory taking it down to -0.4%, from -0.3%.The ECB also extended their QE program to March 2017, which is longer than the initial target of September 2016. In other news, New Zealand’s Central Bank jumped on the easy money band wagon when Governor Graeme Wheeler unexpectedly cut interest rates by 25 basis points to a record low 2.25%. Stocks gapped up on Friday after oil jumped to a multi-month high. The International Energy Agency said oil prices may have bottomed as some production is being taken offline due to low prices. Also the IEA said Iran’s production is slower than expected..
Market Outlook: Rally Continues On Wall Street
The market was deeply oversold so keep in mind the strongest rallies in history occur during bear markets (a.k.a bull traps). As always, keep your losses small and never argue with the tape. If you want help with the market, contact us or sign up for Find Leading Stocks Advanced Reports.
