The stock market was whipsawed last week by volatile share prices, finishing 0.7% lower by Friday’s close. Investors can’t seem to decide if the continuing plunge in oil prices is good or bad for stocks. That uncertainty was partly reflected in half-hearted activity, with volume in the downdraft low and on the rebound even lower, a not particularly encouraging technical sign.

Oil fell 8%, hitting a 52-week low of $47.93 a barrel by Tuesday, and stocks followed. But equities revived when crude edged up later in the week to $48.37. That wasn’t enough to help energy stocks, the worst-performing sector, down 3% last week.

Investors got a lift from comments by Charles Evans, president of the Chicago Federal Reserve. Late Wednesday, he said he wasn’t in favor of raising interest rates until 2016. The Fed is expected to begin hiking in mid-2015.

Last week, the Dow Jones Industrial Average gave up 96 points, or 0.5%, to 17,737.37; and the Standard & Poor’s 500 index lost 13 to 2,044.81. The Nasdaq Composite index retreated 23, or 0.5%, to 4704.07. Bond investors took Evan’s remark to heart, as the yield on the ten-year U.S. note fell below 2% to 1.975%. (Bond prices move inversely to yields.)

“The V-shaped week made it seem like we had a full year’s worth volatility in one week,” says Brian Reynolds, chief market strategist at Rosenblatt Securities. The downside and upside last week was less vigorous than October’s big drop and rebound, says Reynolds. “That tells us there is less investor conviction.” He expects more “violent” ups and downs this year.

Charles Schwab chief investment strategist Liz Ann Sonders also looks for more pullbacks this year and even perhaps a 10% correction, though she doesn’t expect that to “upend” the six-year-old bull market. For some investors at this point in the bull, the “fear of missing out” that fuelled previous snapback rebounds and kept corrections mild is giving way to “fear of losing money.” The willingness to buy on the dips is not as strong as it was, she avers.

Contributing to the rocky 2015 start is uncertainty over the Fed’s path to higher interest rates, she says. Unlike previous Fed tightening courses, this time it’s started from an artificially low level and with an inflated balance sheet.

In the background, there are some tangential factors, adds Reynolds. Worries remain that the European Central Bank will fail to produce a quantitative easing plan later this month that meets investor expectations.

And fears of Greece exiting the European Union could deepen soon. Sunday, Jan. 25, sees a parliamentary election in Greece. The leftist Syriza party, which opposes the country’s international bailout plan and austerity measures, has the lead in pre-election surveys.

(Source: Barrons Online)

Like a heavyweight trying to win a judge’s card in the last round, the bull market forcefully stated its case in the year’s waning days. The holiday-shortened week brought news of consumer sentiment at a seven-year high, and a revised annualized growth rate of 5% for third-quarter gross domestic product, making it the best period in 11 years.

Friday was the lowest-volume day of the year for stocks, but there was still plenty to talk about on the week. After crossing 18,000 for the first time ever, the Dow Jones Industrial Index, finished the week up 1.4%, at 18,053.71. The Nasdaq, meanwhile, edged ever closer to its all-time record, rising 0.9% on the week to 4806.86.

In another positive sign, the Commerce Department said that consumer spending was up a better-than-expected 0.6% in November from the previous month.

“The U.S. definitely still looks like the bright spot, and the information out this week is the confirmation of that,” says Jason Pride, director of investment strategy at Glenmede. “Broadly speaking, the U.S. economy is shaking out nicely to a point where the Federal Reserve backing away from stimulus is not that big of a dampening effect.”

Crude oil, the market’s recent obsession, continued its descent, falling 4.2% on the week to $54.73 a barrel.

“At this point the market has had its period of worrying about energy-related investment, and may now be stepping back and finally recognizing that lower prices on the whole may be a good thing for the economy because of the consumer impact,” Pride says.

But low oil prices, like interest rates, remain a double-edged sword, says Scott Wren, senior equity strategist for Wells Fargo Advisors. Weak prices and low rates are a troubling signal about the long-term health of the economy, he says, noting that investors seemed to brush off the strong GDP figure. “I don’t think the market believes at all that we’re in a far more accelerated economic growth environment,” Wren says. “If the market thought we’d be in a 4% to 5% GDP growth [mode], the bond market would be getting hit hard, yields would be rising, and stocks would be pulling back.”

After nearly falling to 17,000 in mid-December, the Dow has now rallied 1,000 points in the last 10 days. Hank Smith, chief investment officer at Haverford Trust, argues that those gains have probably stolen some thunder from 2015. And yet, he says, we’re probably still in the fifth inning of the bull market.

“Bull markets don’t die because of geopolitical events or exogenous events,” Smith says. “They almost always die in anticipation of the next recession. And, there are no risks of an impending recession. None of the traditional indicators are flashing any warning signs.”

(Source: Barrons Online)