The “risk on” trade is back. Stocks finished a torrid week with major indexes rising more than 3%. In a sign of improved investor confidence, riskier assets outperformed. Shares of small-caps and the most beaten-down companies rallied, as did emerging-market equities, up nearly 7%.

There’s enough global economic weakness for the Fed to delay an interest-rate hike, but investors came round to the conclusion that things are not quite as bad as they thought back in August, says Jason Pride, director of investment strategy at Glenmede Investment and Wealth Management. Last week the Dow rose 3.7%, or 612 points, to 17,084.49. The Standard & Poor’s 500 index advanced 64, to 2014.89. The Nasdaq rose 2.6% on the week, to 4830.47. Stocks have risen eight out of the past nine trading sessions.

The expectation of no hike by the Federal Reserve Bank has weakened the dollar. The greenback is down from early August, which has bailed out some of the hardest-hit stock groups. Rising commodity prices, particularly oil, have also paced the market’s rebound and braced resource stocks. Crude rose 9% last week, its largest gain since August, and closed near $50 per barrel.

It’s no coincidence that the three best stock sectors since Sept. 18 have been energy, up 9%, and industrials and materials, both up 5%, the groups most pressured by higher commodity prices and a stronger dollar.

“The realization that a hike in December is a question mark, that the dollar has stopped going up, and that commodities have stopped going down” renewed interest in riskier assets, says Brian Belski, chief investment officer at BMO Financial Group. Many big investors were underexposed to resources, industrials, and financials, and those sectors took in some cash, he says.

(Source: Barrons Online)