Craig Johnson’s

Market Commentary

Monday, December 15, 2014

Financial Markets Recap for Last Week:

  • After recording a string of seven consecutive weekly gains, the Dow Jones Industrial Average (DJIA) and the S&P 500 dropped sharply last week while breaking the streak. The Nasdaq Composite recorded its second consecutive weekly decline.
  • The decline was not unexpected for the stock market, which had become quite overbought and in need of a pullback. Last week’s selling brought the markets back to a more neutral state. The decline succeeded in making traders and investors quickly forget that just a week earlier on December 5 the DJIA and the S&P 500 had recorded all-time highs.
  • The year to date performance of the major indices has varied greatly. The Nasdaq Composite has enjoyed a good year sporting a gain of more than 11%, while the S&P 500 is up over 8%. The DJIA is holding a much slimmer gain above 4%. The Russell 2000, which is representative of the small capitalization sector, has had a difficult year trying to stay afloat and is down about 1%.
  • The dramatic drop in the price of oil continued last week. Oil dropped from last week’s $66 a barrel to under $58 a barrel. The decline since June has had major negative ramifications throughout the oil industry and in many other areas as well. Especially hard hit areas include the high yield bond market, the international emerging stock and bond markets, materials (steel and other metals), some financial companies, currencies, oil dependent states and of course various countries, most notably Russia.
  • Areas that have benefitted from the decline in oil prices are mostly consumer driven, especially retail.
  • The U.S. dollar continues to enjoy sharp gains as Europe and Japan expand their quantitative easing programs. The dollar has also benefitted from the decline in oil prices.   

 Financial Markets Health and Outlook:

  • The stock market is in a strong uptrend confounding many that keep expecting a sharp pullback. It is likely the market will consolidate some of the recent gains as it is quite overbought, but it remains in a sharp uptrend and any pullback would be short term in nature. (Repeated from last week). Ideally a shift back to growth type stocks and smaller capitalization stocks could ignite a powerful up move for the stock market when this pullback is complete.
  • Gold moved back above the $1200 an ounce level closing above $1222. Resistance resides in the $1260 - $1270 an ounce range.
  • The decline in oil to the $57 - $60 a barrel support area has left oil deeply oversold and is likely to set oil up for a possible bounce to the $69 - $79 range. If a rally occurs, a further decline could result with the potential for oil to drop down to the $35 - $40 a barrel level should the same factors that have caused the decline so far remain in place. The timetable for the potential bounce and further decline will occur possibly quickly or over the next few months.
  • This is the last full week of trading in 2014 before the holiday shortened trading gets underway into yearend. This will also be the last Weekly Market Commentary this year. Have a happy and healthy holiday season!

The next Weekly Market Commentary will be January 5, 2015. 


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.

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