Markets Can Be Like Roller-Coasters.
Oil Drops, The FED Holds Steady, And The ECB Looks Towards Stimulus
You may be enjoying the economic benefits of gas prices around two dollars a gallon, but last week investors were skeptical about the effect of low, low oil prices on companies’ performance during 2015.
For the first time since the financial crisis, the price of crude oil dropped under $50 a barrel last week. That’s less than half of its value just six months ago and one of the fastest drops in the past 30 years. Investors weren’t thrilled with the change. The Standard & Poor’s 500 Index (S&P 500) fell, marking the first time the index has moved lower during each of the first three days of a new year since 2005. Barron’s described the effects of lower oil prices like this:
“In the U.S. alone, oil’s precipitous drop has had a sizable impact on expectations for corporate profits: Analysts have cut their fourth-quarter earnings forecasts for S&P 500 energy stocks by more than a quarter since the end of September while total S&P 500 earnings forecasts have come down by more than 7%… But here’s the thing: Such plunges haven’t been bad for stocks – or the U.S. economy, for that matter. Since 1984, oil has experienced three similar drops and each time the S&P 500 traded higher 12 months later.”
Investors were plagued by mood swings last week. Their outlook improved when the Chicago Fed’s Charles Evans indicated Fed rate hikes shouldn’t start until 2016, which is later than consensus suggests. Many analysts believe the Fed will begin tightening monetary policy (by raising the Fed funds rate) sometime in mid-2015. Investor optimism was tempered when Friday’s employment report didn’t deliver as expected. At the end a volatile week, the S&P 500 was lower.
Across the pond, European Central Bank (ECB) staff presented various models for buying 500 billion Euros of investment-grade debt during 2015. No commitment was made, but expectations the ECB might introduce fresh stimulus measures in late January helped push European government bonds lower.
Data as of 1/9/15 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 (Domestic Stocks) |
-0.7% |
-0.7% |
11.2% |
16.9% |
12.3% |
5.6% |
| 10-year Treasury Note (Yield Only) |
2.0 |
NA |
3.0 |
2.0 |
3.8 |
4.3 |
| Gold (per ounce) |
3.9 |
1.5 |
-0.7 |
-9.0 |
1.1 |
11.2 |
| Bloomberg Commodity Index |
-0.2 |
-0.7 |
-15.3 |
-10.2 |
-6.1 |
-3.3 |
| DJ Equity All REIT Total Return Index |
3.2 |
4.6 |
32.8 |
18.2 |
17.6 |
9.4 |
S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in this index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Oil, Fed & ECB
Sources:
http://online.barrons.com/articles/plunging-oil-what-the-past-tells-us-1420870319?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-12-15_Barrons-Plunging_Oil-What_the_Past_Tells_Us-Footnote_1.pdf)
http://online.barrons.com/articles/volatility-and-uncertainty-mark-2015s-start-1420873506?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-12-15_Barrons-Volatility_and_Uncertainty_Mark_2015s_Start-Footnote_2.pdf)
http://online.barrons.com/articles/closed-end-funds-on-the-cheap-1420865194?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-12-15_Barrons-Closed-End_Funds_on_the_Cheap-Footnote_3.pdf)
The post Oil, FED, And ECB… Oh My! appeared first on Happiness Dividend Blog – Personal Finance, Education and Investment Guidance.