Recap: Week Ending March 11, 2016

March 13, 2016

Equities traded higher for the fourth straight week, making it the longest the win streak since September of 2015. Last week the Dow Jones led the way higher, finishing the week up 1.21% on Friday. The Dow was so strong last week amongst its US peers and settled on Friday at the highs of the week. On the other side of the coin, the NASDAQ 100 index rallied 0.76%, making it one of the weaker indexes. Usually, the NASDAQ is the directional leader when it comes to pushes to the upside. As this is not the case, it begs one to ask the question, is this rally running out of steam? With this being said, the action in equities last week put the S&P 500 in positive territory on the year, trading higher by 1.1% so far in 2016. One of the main reasons for this rally was the dovish monetary policy out of the European Central Bank or ECB. Last week it was announced that the ECB will be reducing its benchmark interest rate from 0.05% to 0% as it attempts to jump-start the economy by means of cheap loans. To get money circulating, the ECB has set a -0.4% deposit rate where depositors will have to end up paying to hold their money in banks instead of receiving interest. It must be noted that this is the second move in monetary policy by the ECB in the last three months. The announced in Europe sent stocks in the Euro Zone higher which eventually spread to North American markets. Despite the announcement of lower rates in the EU, US bond prices fell as yields rallied. Last week the US 10 Year Treasury Note traded higher from an open on Monday of 1.91% to 1.98% where it settled on Friday. The move higher in the yield is the second straight week which it has seen upside action. Gold sold off last week as the risk-on trade occurred with money flowing out of bonds and into equities. Last week, the price of COMEX gold fell $9 or 0.71% to settle at $1,251. Recently gold has become an asset where investors go to during times of market uncertainty. It must be noted that one would have expected gold to rally on the announcement out of the ECB as gold has been considered a hedge against inflation. As the ECB is attempting to increase inflation, in the eyes of many gold should have experienced a rally. With this being said, the fall in gold did not still over into other commodities. Like equities, the price for NYMEX crude oil climbed higher last week, marking the fourth straight week of gains. Last week the price of the crude rallied $2.16 or 5.95% to settle Friday at $38.49. The positive news in regards to the energy complex did not only have effects on the US markets.


Last week the Toronto Stock Exchange Composite Index, or TSX, moved higher for the second straight week, trading up 309 points or 2.34% to settle the week out at 13,522. Like the Dow, the TSX settled the week out very close to its highs. The rally in the price of crude oil can be considered as one of the main bolsters for this rally. With this being said, on Friday we did receive the Canadian unemployment report for the month of February. On a month over month basis, the unemployment rate rose from 7.2% to 7.3%. A survey of economists did not expect a change in readings between January and February. In February, the Canadian economy reported a loss of 2.3K jobs. Even though this number is not great, it is an improvement over the reading of a loss of 5.7K jobs in January. However, it must be noted that economists were expected a creation of 9K jobs last month. Despite the poor unemployment report, the TSX did rally on Friday. On a technical analysis basis, the TSX is currently about to trade up to its 200-day simple moving average. This is a key indicator and typically acts as a level of resistance for pushes to the upside. At its current pace of upside activity, the TSX should hit this average early this week. Currently, the 200-day simple moving average is reading 13,588.

DeGroote on Facebook DeGroote on Twitter WMA LinkedIn