Stocks jumped 3% in a quiet, holiday-shortened trading week. Dross was boss, as the rally was led by short-covering in some of the most beaten-up and hated stocks of the year, particularly in the commodities sector.

Equities were boosted by a reversal in crude prices, which bounced 9% off lows and finished the week at $38.10. The market reversed the losses it sustained in the aftermath of the Federal Reserve’s interest-rate hike the previous week.

Energy stocks rose 5% on the week, but remain down 22% this year. Materials stocks tacked on 4% last week, but are still off 9% on the year. Aluminum and even coal stocks had a good week. The Dow Jones Industrial Average gained 424 points, or 2.5%, to 17,552.17, and the Standard & Poor’s 500 rose 55 to 2060.99. As of Thursday, the Dow is down 1.5% for the year.

Oil prices stabilized, lifting many stocks in the energy complex and materials, too, says Ernest Cecilia, chief investment officer of Bryn Mawr Trust. Still, longer-term, commodities prices continue to have a downward bias technically, he says. The Organization of the Petroleum Exporting Countries said last week that it expects oil prices won’t reach near triple digits per barrel—last seen in 2014—until 2040. That could be about as a good a contrarian signal as you’ll get.

“It was a ‘losers’ rally,” says Scott Colyer, chief executive officer of Advisors Asset Management. Equity that was considered junk turned into gold in a furious short-covering bounce, he notes. Indeed, data from Bespoke Investment Group showed that those Russell 1000 stocks in the bottom 10% of performance for 2015 jumped an average of 7% last week, as of Wednesday. The worst 20 stocks for the year were up 10% last week.

There wasn’t much individual-investor buying, and sentiment remains negative, says Bucky Hellwig, regional portfolio manager at BB&T Wealth. Still, market breadth improved as investors went for oversold stocks, he says.

That’s at least a positive sign, as equity gains have been concentrated this year in a handful of mostly tech stocks that have risen by double and even triple digits, including Amazon.com (ticker: AMZN), up 114% this year.

This is a traditionally strong season for stocks, with the so-called Santa Claus rally typically visiting in the last two weeks of December. Notwithstanding last week’s activity, it will take another 1% rise this week for December to be in the black.

(Source: Barrons Online)