It was a bumpy week on Wall Street but after all was said and done the bulls emerged victorious. Stocks fell hard in the beginning of the week, bounced hard in the middle of the week, and were down for most of Friday but rallied and closed in the upper half of the weekly range (which is bullish). On Friday, the Labor Department said U.S. employers added 252k new jobs, topping estimates for 240k. In fact, in 2014, the U.S. economy added 2.95 million jobs which was the largest calendar-year gain since the figure topped 3 million in 1999.
Monday-Wed’s Action: Buyers Show Up On Tuesday and Send Stocks Higher
Stocks fell hard on Monday after the US dollar jumped to the highest level in almost a decade. Concurrently, the Euro plunged to the lowest level since 2006 and Crude Oil briefly fell below $50 a barrel for the first time since 2009! A slew of stocks got hammered as investors unloaded stocks on the first Monday of 2015.
Stocks fell on Tuesday as fear spread regarding the deteriorating situation in Europe and ongoing weakness in the energy market. Crude oil tumbled another 4% and was already down 10% in 2015! Crude was the worst performing asset class in 2014- plunging $45/barrel or ~46%! The euro also plunged to the lowest level since 2009 as fear spread regarding another Grexit (Grece will leave the Eurozone). The S&P 500 had its fourth worst start to the year in history. The only other worse years were 1932, 2000, and 2008 (source: Jason Goepfert). Something subtle changed on Tuesday, the sellers appeared to be exhausted and we noted in our mid-week update that the market was forming a small buy tail on an short term basis. That usually sets the stage for a nice rally.
Not surprisingly, that is exactly what happened. Stocks rallied sharply on Wednesday after Germany, Europe’s largest economy, extended an olive branch to help restore confidence. Eurozone inflation fell by 0.2% from a year ago which is not ideal and supports the notion that deflation remains more of a threat to the global economy. This caused the euro to fall even further and led many people to believe that the ECB would expand the breadth of its asset purchase program at its meeting later this month. In the U.S. the minutes of the Fed’s latest meeting were announced and showed that the Fed will continue to support the market, if needed. That also helped boost stocks.
Thurs & Fri’s Action: Stocks Rally After Strong Jobs Data
Stocks rallied nicely on Thursday, helping the Dow Jones Industrial Average get back into positive territory for the year. Charles Evans, president of the Federal Reserve Bank of Chicago, said that the U.S. might not hit the Fed’s target inflation rate until 2018, and he does not advise raising interest rates until 2016. This set the stage for more easy money from the Fed and stocks soared on the news. Stocks on Friday after the nightmare in France came to a swift end and the jobs report topped estimates. U.S. employers added 252k jobs in December as the unemployment rate slid to 5.6%. This beat the Street’s estimate for 240k. Meanwhile, the unemployment rate slid to 5.6%, which is the lowest reading since June 2008.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been the primary theme for the last 18 months. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). Until material damage occurs, this market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.