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The Markets This Week

April 12, 2016 | Weekly Commentary

In a push-me-pull-you week of light trading, the major equity indexes finished down 1%. A strong rally early Friday pared losses for a time but fizzled. Although energy stocks rose, poorly performing bank stocks didn’t help matters.

There was some profit-taking after the previous week’s 2% rise, and stocks fell Thursday as the Japanese yen rose, despite the Bank of Japan’s efforts to push it lower with a negative interest-rate policy. That dented investor confidence in the ability of central banks to boost global growth, market observers say.

Rising oil prices helped bolster stocks, as they did after February’s lows. Oil rose 8% on the week to $39.72 per barrel, giving solace to those who believe the commodity is finally stabilizing. The energy-stock sector was the best performer last week, up more than 2%. Financials fell 3%.

The Dow Jones Industrial Average gave up 216 points, or 1.2%, on the week, to 17,576.96, and the Standard & Poor’s 500 index fell 25 to 2047.60. The Nasdaq dropped 1.3% to 4850.69.

Investors had plenty of conflicting data to absorb, says Kenneth Polcari, director of NYSE floor operations for O’Neil Securities. “The conversation turned around the yen trade,” and the fact that the currency’s rise is testing the Bank of Japan’s credibility, he says. It’s no surprise, then, that bond prices rose on the week. The market is in a trading range around 2050, says Polcari. “We haven’t broken out of it, but we haven’t broken down,” he adds.

Macroeconomic factors have influenced the market over the past few weeks, but when first-quarter earnings start flowing in this week, there will be more stock-specific activity, says David Lefkowitz, senior equity strategist at UBS Wealth Management Americas. Earnings are likely to be better than expected, although that will mean “less bad,” says Randy Frederick, managing director at Charles Schwab. “It’d be nice to see revenue growth,” he says.

It’s going to be the fourth quarter in a row of flat or down earnings, Lefkowitz says. Earnings could pick up in the second half of 2016, when head winds from the dollar’s rise and crude’s fall start to moderate in the quarterly comparisons. “We’ll remain in a trading range until there’s greater conviction that we’ll see a resumption of earnings growth,” he says.  In addition to the start of profit reports this week, investors will see key U.S. economic data on inflation and retail sales beginning midweek.

(Source: Barrons Online)

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