The stock market rose smartly for the second straight week, up 1.5%, continuing a steep rebound from Feb. 11 lows. Trading volumes were relatively light. Stocks fell Friday, however, failing to follow through on a strong mid-week rally and leaving some to wonder about its sustainability.

On the whole, U.S. economic figures last week were mixed to bullish, but the strongest data raised concerns the Federal Reserve will feel more pressure to raise rates faster than expected. Friday’s weakness stemmed from consumer spending and inflation data—both out the same day—that buttressed the view that the economy is healthier than bears contend. Yet accelerating inflation also brings rate hikes that much closer.

That could explain the market’s softness after the Standard & Poor’s 500 index topped the 1950 level Thursday, the previous mini-rally’s high and a point many considered a strong technical resistance level.  A number of other bullish technical signs were evident. The S&P 500 index moved back above its 50-day moving average for the first time since Dec. 29. While trading activity was generally light, advancing share volume was strong compared to declining volume, with fewer stocks making new lows.

The Dow Jones Industrial Average rose nearly 250 points, or 1.5%, last week, to 16,639.97, while the S&P 500 index gained 30, or 1.6%, to 1948.05. The Nasdaq finished with a 2% gain to 4590.47

“We’ve seen a reversal of some very pessimistic sentiment that was around at the beginning of February,” says Anthony Valeri, a stock market strategist. Helping were bullish economic releases, including a 4.9% rise in January durable goods orders, the biggest in 10 months, he notes.

On Friday, the Commerce Department said January consumer spending rose 0.5%, also the biggest gain in 10 months. And personal consumption expenditures (PCE), the Fed’s preferred inflation measure, increased 1.3% in December from 12 months prior, the largest rise in the price index since October, 2014. Core PCE rose 1.7%, the most since July 2014. Fourth-quarter GDP was revised up to a 1% expansion from 0.7%, significantly above consensus of 0.4%Investors already are looking to the next Federal Open Market Committee meeting, which ends March 16, though no rate change is expected. Instead, says Valeri, the Street will be looking for hints about the pace of possible rate hikes.

Jeffrey Kleintop, chief global investment strategist at Schwab, says the economic data might not be enough to influence Fed chair Janet Yellen or change the central bank’s recent signals that rates might be temporarily on hold. “Does the FOMC tone change a little?” That’s what investors want to know, he says.

Further out, the political backdrop could bring more choppiness and a range-bound market, says Thomas Villalta, director of investment research at Covenant Multifamily Offices. “The electorate seems to want anything but a conventional party politician, whether Donald Trump or Bernie Sanders,” he says. Both represent uncertainty for investors and portend volatility, he adds.

February’s unemployment figures are due out Friday. Investors and the Fed will be examining them closely.

(Source: Barrons Online)

Stocks staged a sharp rally last week, with the major indexes rising nearly 3% in a holiday-shortened week. The market has rebounded almost 5% from the previous Thursday, when it hit 2016 lows, inspiring hope that at least a near-term bottom is within sight.

While investors welcomed the bullish turn, it was more style than substance. Given that buying was concentrated in the worst-performing stocks, last week’s rally seems more of a knee-jerk reaction to an oversold condition. Crude prices rose last week, and the lack of bad news from that sector was good news for stocks. In general, U.S. economic data was mixed but leaned positive, a badly needed boost to morale.

The Dow Jones Industrial Average tacked on 418 points or 2.6%, to 16,391.99 last week, while the Standard & Poor’s 500 index rose 53 to 1917.78. The Nasdaq finished with a 4% gain to 4504.43.

It was a “happy,” nearly 100-point jump in the S&P 500 over the past five trading days, says Jonathan Corpina, senior managing partner at Meridian Equity Partners. Nevertheless, “all the fear factors haven’t gone away,” and short covering helped. “It’s not as if the economic data or earnings-reports releases were particularly better last week.”

Bernie McGinn, CEO of McGinn Investment Management, concurs, adding that the rally had “more to do with bottom fishing than any major change in direction.” For months, the story’s been “energy, energy, energy, so when oil hangs around $30, as it did last week, that’s at least healthy.” Crude rose 0.7% to settle at $29.64 per barrel, snapping a two-week losing streak.

For the stock market to regain its equipoise, energy and financial stocks need to show strength, McGinn adds. Both sectors are down 14% over the past three months, the two worst sectors in the market. “Oil doesn’t need to get back to $75 per barrel, but even stabilization in the $30s” would take the edge off bearish attitudes, he says.

Meridian’s Corpina says Monday might be a good indicator for the action the rest of this week, as there’s little in the way of important economic indicators or earnings news to influence prices. The market will be on its own, he notes.

Looking ahead a few months, there are three factors that would help stocks the most, says Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management. The market needs economic data to be good, but not so strong as to force the Federal Reserve to raise rates in March. The European Central Bank must continue to ease monetary policy, and a real deal on cutting the world’s supply of oil is necessary, he says. If things go the opposite way, however, then pressure on stocks will renew, Mahn adds.

(Source: Barrons Online)