NEW YORK: US stocks went from famine to feast last week, starting out fearful of crashing oil prices and finishing it smiling at a “Santa Claus rally.”
The turnaround came Wednesday, the first of three buoyant sessions that by week’s end left the S&P 500 in positive territory for December. “The week was remarkable as far as the velocity of the market’s move,” said Michael James, managing director of equity trading at Wedbush Securities.
The Dow Jones Industrial Average shot up 523.97 points (3.03 percent) to 17,804.80.
The broad-based S&P 500 jumped 68.32 (3.41 percent) to 2,070.65, while the tech-rich Nasdaq Composite Index gained 111.78 (2.40 percent) at 4,765.38.
The week opened with the same grim sentiment that led to previous week’s global equity rout. Adding to worries about tumbling oil prices was anxiety over
the crashing Russian rouble, which has lost nearly half
its value in 2014 compared with the dollar.
The drop in the rouble “is messing with the US stock market’s typically festive holiday spirit as it is evoking concerns about the potential for default risk, financial risk, and economic risk,” Briefing.com analyst Patrick O’Hare said Tuesday.
However, markets began reversing course on Wednesday morning in anticipation of a Federal Reserve policy announcement later in the day.
Following a two-day meeting, the US central bank left in place market expectations that it may raise interest rates only in the middle of 2015 and not sooner and gave a fairly upbeat assessment of the economy.
Fed Chair Janet Yellen offered reassurances that sharply lower oil prices are a net-positive for the economy and that economic fallout from struggling Russia is likely to be limited.
US stocks rose significantly after the Fed’s announcement and stormed higher again on Thursday, with the Dow jumping more than 400 points. The gains were smaller on Friday, but the S&P 500 still finished the week within shouting distance of a record.
“The Fed basically said what the market wanted to hear, that is, they’re not going to raise interest rates before what the market was expecting, which is some time from the midpoint of next year, so that was encouraging,” said Tom Cahill, portfolio strategist at Ventura Wealth Management
James said the market’s response to low oil prices and the crashing rouble was comparable to its reaction to other worries this year, such as the Ukraine crisis and anxiety over tech sector valuations.
“We’ve seen these types of dislocations several times over the last two years,” he said. “Every time it’s been proven in hindsight that weakness is to be bought and the market continues to be in an upward trend.”AFP
