After a mostly blah week, stocks staged a respectable rally Friday to cruise solidly into the black, up 1% last week. The main impetus was a concurrent rise in crude prices, but more monetary easing announced by the European Central Bank lent support.

With little in the way of important U.S. economic news, eyes were focused on the global oil market and the ECB. Crude oil rose 7% last week to $38.50 per barrel, after the International Energy Agency said it saw signs of a price bottom and talk of a production freeze from some oil producers.

This fourth week in a row of rising energy prices bolsters the idea that oil is finally stabilizing after the precipitous drop of the past 20 months. It’s perhaps no surprise then that stocks rose four weeks in a row, too.

The ECB whipsawed markets. A big move up Thursday was the initial market reaction to the ECB’s new rate cuts and other stimulus moves. However, that excitement dissipated when ECB President Mario Draghi noted that he didn’t anticipate further rate reductions. Equity investors didn’t like that, and the euro rose quickly against the U.S. dollar, but the oil rally came to the rescue.

The Dow Jones Industrial Average added 207 points or 1.2%, to 17213.31 last week, while the Standard & Poor’s 500 index gained 22, to 2022.19. The Nasdaq increased 0.7% to 4748.47.

For the past few years, when monetary stimulus is applied, “it’s been risk on,” says Richard Weeks, managing director at Hightower Advisors. The situation is more nuanced now, and the market has reached a “no man’s land” level. It’s a spot where some funds are ready to re-short the market, but where recent good U.S. economic news belies the growth scare that drove down stocks in February, he says.

After Draghi’s comments, central-bank credibility will hang in the balance, adds Jack Ablin, chief investment officer at BMO Private Bank. Investors are weighing whether the stimulus will work, as some fear Draghi has “thrown in the kitchen sink,” and that there isn’t much else he can do to stimulate Europe’s lethargic economy.

The U.S. economic backdrop seems positive, but market fundamentals are lousy, he adds. Market valuation is a head wind that could make it hard for stocks to rally, while profit growth continues to slide, he says. The market’s price/earnings ratio is nearly 17 times analysts’ 2016 consensus earnings-per-share estimates.

Investors shouldn’t get too comfortable when it seems that oil moves and central-bank maneuvers are the main reason stocks go up or down, not earnings and economic growth.

(Source: Barrons Online)

The February blues melted away, and stocks roared ahead nearly 3% for a third consecutive weekly gain. Global equities jumped, particularly emerging markets.

Improved sentiment was supported by higher commodity prices; macroeconomic news that was, on balance positive; and little prospect of the Federal Reserve hiking interest rates March 16 when its Federal Open Market Committee next meets. U.S. economic data continue to be mixed to good. Investors are trying to have it both ways, hoping for positive data, but not so positive that the Fed will raise rates sooner than expected.

A general rebound in commodities, from copper to cotton, plus crude oil’s 37% rise from its lows have investors less worried about global growth. One technical negative note is that this stock market rebound continues to be characterized by low trading volumes, meaning conviction isn’t strong.

The Dow Jones Industrial Average tacked on 367 points, or 2.2%, to 17,006.77 last week, while the S&P 500 rose 52 pts to 1999.99. The Nasdaq rose 2.8% to 4717.02.The Labor Department on Friday reported better-than-expected data, as nonfarm payrolls picked up 242,000 jobs last month, compared to projections of 195,000. The unemployment rate was flat at 4.9%, and labor participation rose.

As good as the rebound has been, it remains suspect to some. “It’s hard to see the market propelled to higher levels,” says Margaret Patel, a senior portfolio manager at Wells Capital Management. The U.S economy is still growing slowly, emerging markets are still deteriorating, and Europe is just “slogging along, a little better than flat.”

Paul Nolte, a portfolio manager at Kingsview Asset Management, says the only good thing about the employment numbers was the payrolls headline. “Wage growth was terrible for an economic recovery that has lasted this long,” he notes. Average weekly earnings data fell to 1.6% growth year on year from 2.5% in January. “It’s just one month of data, but you’d expect higher wage gains with the rise in payrolls,” he says.

“It was an oversold condition with everyone on one side of the boat,” adds Michael Mullaney, chief investment officer of Fiduciary Trust, of the February downdraft. “With this rebound the market’s overall tone is better, and things have stopped getting worse,” he says, helped by Fed chatter that has been more dovish lately, backing away from the idea of four rate hikes this year.

For a sustained rebound, however, “we need to see positive earnings estimate revisions. You have to be somewhat suspect of the market’s ability to hold this level without that,” says Mullaney.

(Source: Barrons Online)