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The Markets This Week

March 9, 2016 | Weekly Commentary

The February blues melted away, and stocks roared ahead nearly 3% for a third consecutive weekly gain. Global equities jumped, particularly emerging markets.

Improved sentiment was supported by higher commodity prices; macroeconomic news that was, on balance positive; and little prospect of the Federal Reserve hiking interest rates March 16 when its Federal Open Market Committee next meets. U.S. economic data continue to be mixed to good. Investors are trying to have it both ways, hoping for positive data, but not so positive that the Fed will raise rates sooner than expected.

A general rebound in commodities, from copper to cotton, plus crude oil’s 37% rise from its lows have investors less worried about global growth. One technical negative note is that this stock market rebound continues to be characterized by low trading volumes, meaning conviction isn’t strong.

The Dow Jones Industrial Average tacked on 367 points, or 2.2%, to 17,006.77 last week, while the S&P 500 rose 52 pts to 1999.99. The Nasdaq rose 2.8% to 4717.02.The Labor Department on Friday reported better-than-expected data, as nonfarm payrolls picked up 242,000 jobs last month, compared to projections of 195,000. The unemployment rate was flat at 4.9%, and labor participation rose.

As good as the rebound has been, it remains suspect to some. “It’s hard to see the market propelled to higher levels,” says Margaret Patel, a senior portfolio manager at Wells Capital Management. The U.S economy is still growing slowly, emerging markets are still deteriorating, and Europe is just “slogging along, a little better than flat.”

Paul Nolte, a portfolio manager at Kingsview Asset Management, says the only good thing about the employment numbers was the payrolls headline. “Wage growth was terrible for an economic recovery that has lasted this long,” he notes. Average weekly earnings data fell to 1.6% growth year on year from 2.5% in January. “It’s just one month of data, but you’d expect higher wage gains with the rise in payrolls,” he says.

“It was an oversold condition with everyone on one side of the boat,” adds Michael Mullaney, chief investment officer of Fiduciary Trust, of the February downdraft. “With this rebound the market’s overall tone is better, and things have stopped getting worse,” he says, helped by Fed chatter that has been more dovish lately, backing away from the idea of four rate hikes this year.

For a sustained rebound, however, “we need to see positive earnings estimate revisions. You have to be somewhat suspect of the market’s ability to hold this level without that,” says Mullaney.

(Source: Barrons Online)

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