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The Markets This Week

February 9, 2015 | Weekly Commentary

The market’s wild moods continue, as bulls returned in force after being routed from the field the previous week. Stocks soared 3%, recovering all of the lost ground, on a rally fuelled by rising energy prices and robust U.S. economic data.

Oil rose 7% to $51.69 per barrel, and is up over 13% in the past two weeks. Although the European Central Bank took Greek bonds off its list of acceptable collateral, talks are ongoing about easing the country’s overwhelming debt problems. U.S. fourth-quarter earnings reports are meeting—albeit lowered—expectations.

What the state of global growth means to the Federal Reserve and when it will begin hiking interest rates—expected in midsummer—remain hotly contested. Action in 10-year U.S. Treasury notes suggests sooner rather than later, with the yields jumping 0.26, to 1.94%, the largest one-week increase since June 2013. (Bond prices move inversely to yields.)

Last week, the Dow Jones Industrial Average jumped 659 points, or 3.8%, to 17,824.29. The Standard & Poor’s 500 index tacked on 61, to 2055.47. The Nasdaq Composite rose 109, or 2.4%, to 4744.40.

Oil has become something of a Rorschach test for the global economy, says David Donabedian, chief investment officer at Atlantic Trust Private Wealth Management. The market is interpreting the energy rebound as a positive indicator for world growth.

A “nice stable level of crude gives investors confidence,” adds Randy Frederick, managing director of trading and derivatives at Charles Schwab. “The jobs data was universally positive, too.”

The Labor Department said on Friday that the unemployment rate in January rose to 5.7% from 5.6% on higher participation, but the details below the headline, such as payrolls and wage growth, were strong.

The economy is in the sweet spot—“not too hot and not too cold,” Donabedian says. Quarterly earnings are coming in better than expected, and a high-profile merger doesn’t hurt, he adds. On Thursday, Pfizer (ticker: PFE) agreed to buy Hospira (HSP) for about $16 billion. It rose 34%, to 87.43.

If evidence were needed that 2015 was more volatile than 2014, Frederick points out the average daily swing in the S&P 500 index so far this year is 19 points, nearly 1%, compared with 12 points in the same period of 2014 and a 10-points average for all of 2014. Volatility gives traders opportunities but investors agita.

(Source: Barrons Online)

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