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The Markets This Week

December 30, 2014 | Weekly Commentary

Like a heavyweight trying to win a judge’s card in the last round, the bull market forcefully stated its case in the year’s waning days. The holiday-shortened week brought news of consumer sentiment at a seven-year high, and a revised annualized growth rate of 5% for third-quarter gross domestic product, making it the best period in 11 years.

Friday was the lowest-volume day of the year for stocks, but there was still plenty to talk about on the week. After crossing 18,000 for the first time ever, the Dow Jones Industrial Index, finished the week up 1.4%, at 18,053.71. The Nasdaq, meanwhile, edged ever closer to its all-time record, rising 0.9% on the week to 4806.86.

In another positive sign, the Commerce Department said that consumer spending was up a better-than-expected 0.6% in November from the previous month.

“The U.S. definitely still looks like the bright spot, and the information out this week is the confirmation of that,” says Jason Pride, director of investment strategy at Glenmede. “Broadly speaking, the U.S. economy is shaking out nicely to a point where the Federal Reserve backing away from stimulus is not that big of a dampening effect.”

Crude oil, the market’s recent obsession, continued its descent, falling 4.2% on the week to $54.73 a barrel.

“At this point the market has had its period of worrying about energy-related investment, and may now be stepping back and finally recognizing that lower prices on the whole may be a good thing for the economy because of the consumer impact,” Pride says.

But low oil prices, like interest rates, remain a double-edged sword, says Scott Wren, senior equity strategist for Wells Fargo Advisors. Weak prices and low rates are a troubling signal about the long-term health of the economy, he says, noting that investors seemed to brush off the strong GDP figure. “I don’t think the market believes at all that we’re in a far more accelerated economic growth environment,” Wren says. “If the market thought we’d be in a 4% to 5% GDP growth [mode], the bond market would be getting hit hard, yields would be rising, and stocks would be pulling back.”

After nearly falling to 17,000 in mid-December, the Dow has now rallied 1,000 points in the last 10 days. Hank Smith, chief investment officer at Haverford Trust, argues that those gains have probably stolen some thunder from 2015. And yet, he says, we’re probably still in the fifth inning of the bull market.

“Bull markets don’t die because of geopolitical events or exogenous events,” Smith says. “They almost always die in anticipation of the next recession. And, there are no risks of an impending recession. None of the traditional indicators are flashing any warning signs.”

(Source: Barrons Online)

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