Recap: Week Ending December 19, 2014
Equity markets across the globe climbed higher last week with some benchmark indexes closing up well over 5%. In the United States, the S&P 500 pushed 3.4% higher last week, almost erasing all of the losses made in the previous trading week. In Canada, the Toronto Stock Exchange Composite Index, also known as the TSX, climbed over 5.3% last week engulfing the prior week’s highs and lows, forming an extremely bullish technical signal. The move higher in the TSX was supported by a somewhat stabilization in the price for North American crude which settled down only $0.58 or -1.01% for the week. The loss last week in crude is one of the smallest the energy benchmark has seen in months. The move higher in equities saw extreme strength due to the fact that all major indexes moved in unison, forming a strong positive correlation. When correlations are at extremes, the market will most commonly have a strong direction push which is met with great conviction.
The major economic news out last week the United States Federal Reserve FOMC’s economic projects as well as its Monetary Policy Statement and press conference. The whole tone of the meeting was centered on the idea of when the Fed will raise rates from their current levels. Currently, the Fed Funds Rate in the United States is at all time lows, being targeted between 0 – 0.25%. Chairwomen Yellen is quoted saying that The Fed is unlikely to start its rate hike process for “at least the next couple of meetings.” Later Yellen went on to state that there would be considerable time before the next policy rate hike. At first markets did not know how to react to the news, trading higher then selling off. However, by the end of the day equities were able to close the day higher. The low made Wednesday was the trend low from the sell off in December. Since that low, the Dow Jones has rallied almost 4.3% to close Friday at 17,804.80. The news out of the Fed sent a shockwave of buying pressure around the globe where equities in Europe and Asia saw a strong bid enter their markets. The words from Yellen was especially bullish for the US Dollar Index, which rallied 1.7% on the week to close at multi-year highs. The push higher in the Dollar is one of the strongest the currency has seen in many months. On the flip side, the news was taken on a heavier note with traders and investors of the US 30yr bond declining 0.53% in price last week.
This week will be a quiet week as markets around the World will be closed to celebrate the Christmas holidays. On the 24th, Wednesday, the New York Stock Exchange will close early at 1pm. The exchange will remain closed on Thursday and will reopen Friday as regular at 9:30am. The Toronto Stock Exchange will close on the 24th as regular at 4pm, however, will be closed on both the 25th and 26th in celebration of Christmas and Boxing Day. Many are not expecting much action or volume this week as investors and traders alike will be away on holidays. It is expected that the market will only climb higher on the bullish news out of the Fed. With this being said, traders will keep their eye on the major US indexes to see if they can once again close at their yearly highs as they did last year.
Merry Christmas and Happy Holidays!