Monday, November 17, 2014
Financial Markets Recap for Last Week:
- The continuing strength of the stock market pushed all of the major indices higher for the week. The Dow Jones Industrial Average, S&P 500, Nasdaq 100 and Nasdaq Composite extended their rally streaks to four consecutive weeks.
- Since October 15 when the major indices recorded their recent lows, the indices have rallied well over 10% from those lows to last week’s highs.
- The Russell 2000, an index which is representative of the small capitalization universe, finished fractionally higher for the week, avoiding the index recording two consecutive weeks lower. The stock market for better or worse has been dominated by large capitalization stocks outperformance since February.
- The initial move off the October 15 low was extremely encouraging for the less than large capitalization indices. A powerful move by the Russell 2000 that despite being down the previous week and only slightly higher last week is ranked as one of the best performing indices since that low.
- The U.S. dollar remains strong and that is significant to the financial markets. The dollar’s strength is punishing commodity prices, which in turn has been pressuring gold prices. Oil prices continue to weaken with the decline being accelerated by Saudi Arabia stepping up production when in the past they have cut production to support prices. There are two thoughts on their recent action: the first being the stepped up production by Saudi Arabia is a result of OPEC’s declining influence. The other thought is that Saudi Arabia is attempting to keep the price of oil low enough to stave off newer sources and potential sources of production.
- Gold prices broke a string of three consecutive weeks lower with a spirited rally on Friday. The precious metal closed the week near $1190 an ounce.
Financial Markets Health and Outlook:
The stock market is short term overbought and could give way to a pullback or consolidation of the recent gains at any time. The overall trend is higher and further gains are likely as the market begins the seasonally strong period in November. Historically, November has been the strongest month for the Russell 2000. (Repeated from last week).
The stock market’s advance has been relentless recently and has forced many to throw in the towel and buy stocks at higher prices. Typically the market will consolidate those gains with a period of sideways activity or a pullback in the magnitude of about 5 – 7% on an intraday basis. Either scenario is quite likely in the near term. (Repeated from last week). Even though prices moved higher this past week, a more general sideways, low volatility environment seemed to be developing.
The fixed income market has also been somewhat sideways lately with significant resistance keeping yields from rising. It is nearing a point where it could begin a more definitive trend higher or lower shortly. The market will have to provide the direction as there is very little evidence to try to forecast the move before it occurs.
Lower oil prices are a huge help to consumers. Every less dollar spent to buy oil can be used in other ways. As we near the holidays and the retail sector’s critical time of the year many believe that retailers can enjoy a much more robust season than what was thought just a few months ago.
Sources: bankrate.com, bloomberg.com, briefing.com, Dow Jones News, Financial Times, finviz.com, Investor's Business Daily, marketwatch.com, seekingalpha.com, Thomson Reuters/First Call, U.S. Dept of Treasury, yahoo.com and individual company web sites and press releases.
Leonetti & Associates, LLC views or opinions are as of a certain date and subject to change without notice. The material contained herein is for informational purposes only and obtained from sources we consider reliable. We make no guarantee as to its accuracy or completeness. References to specific securities and industries/sectors should not be considered recommendations to buy or sell any security or advisory service. Past performance is not a guarantee of future results.