Dovish indications from the Federal Reserve drove equities more than 1% higher last week. The major indexes moved into the black for the first time this year and within shouting distance of all-time highs. Rising oil prices again added fuel to this fifth consecutive weekly rally, while a soft dollar helped big-cap stocks outperform.

After a poor start, it was party on once the Federal Open Market Committee meeting ended on Wednesday. FOMC projections suggested it would raise rates just twice this year, or half a percentage point of tightening in all, instead of the previously expected four hikes, for a full percentage point increase.

Meanwhile, oil rose 2%, to $39.44 per barrel, and flirted briefly with a 40 handle for first time since early December. That has gone a long way to easing fears about global recession.

The Dow Jones Industrial Average tacked on 389 points, or 2.3%, to 17,602.30 last week, while the Standard & Poor’s 500 index rose 27 points, to 2049.58. Both are only 4% below record highs. The Nasdaq increased 1%, to 4795.65.

“Apparently, we are drinking from the never-ending fountain of near-zero interest rates again,” says Kimberly Forrest, senior equity analyst at Fort Pitt Capital Group. The weakening greenback helped the major indexes’ megacaps, which benefit the most from a declining dollar.

“Markets have a short memory when it comes to the bad stuff,” says Steve Sosnick, senior trader at Timber Hill. Complacency seems to have returned, and “that frightens me the most,” he adds. The situation wasn’t as dire as the market had it at February lows, but things aren’t as rosy now as they were the last time the market was at these levels, he says.

The market’s valuation, at 17 times consensus analyst earnings-per-share estimates for 2016, looks stretched again, given that easy monetary policy and rising oil prices—not earnings growth—are responsible.

The multiple that the market pays for stocks will eventually reconnect to lackluster—or worse—earnings-per-share figures. The U.S. isn’t in a recession, but it isn’t growing like it’s capable of, adds Fort Pitt’s Forrest.

We could have more good times until first-quarter results begin to be released in three to four weeks. However, the S&P 500 index’s first-quarter EPS are seen declining 7% after a 3% fall in the final quarter of 2015.

One way the rally could roll on is if value stocks, which have lagged behind growth stocks in the seven-year bull market, pick up the rally baton. Growth stocks, however, would have to at least remain flat.

(Source: Barrons Online)

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)