Market Direction Week of February 22, 2016

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Last Week Review: Stocks were up noticeably on the week, fueled by oil prices that surged more than 10% intra-week due to a proposed coordinated production freeze from Saudi Arabia and Russia, which was supported by Iran. Supporting markets further were reassuring comments from the Federal Reserve (Fed) that implied that they will be careful not to raise interest rates too fast. We expect the price of oil and the Fed to remain a source of market volatility going forward. But remember, volatile markets are a normal part of investing. Ensure that the mix of stocks and bonds in your portfolio is appropriate for your comfort with risk and your ability to stay invested in more volatile markets.

Major indexes were higher on the week, with all market sectors posting gains. The Dow Jones Industrial Average gained 418 points to end the week at 16,392, up 2.6%. The S&P 500 gained 53 points to end at 1,918, up 2.8%. Bond prices were unchanged on the week, as the U.S. 10-year Treasury bond yield held steady to end at 1.75%.

How the market finished last week, the S&P 500 up 2.8%, the Nasdaq up 3.9%, and the Dow up 2.6%.

This Week: With the strong chain of economic data we received this past week, we are starting to see signs that perhaps the worst of the correction may be behind us. And while the improvements were rather modest so far, this has had an impact on the outlook for interest rates. Following the CPI report on Friday (2/19) Fed Funds futures indicated the probability of a March rate hike was 6% versus just 4% on Thursday. Perhaps more significantly, the probability of a June hike increased to 22% from just 16% on Thursday. While these still indicate a relatively remote possibility, there are many economic reports to be released prior to these meetings. The big question is whether or not the market can shift back to a “good news is good news” mode again.

Economic data provides several positive surprises and a rebound in oil prices provides a long overdue bounce in equities. But will it last?

Most of the changes in the indicators were in a positive direction, but that doesn’t necessarily mean the markets are “off to the races”. The consensus of the indicators seem to be telling us that next week volatility may continue to drift slightly lower, but the most likely outcome for the markets is sideways; essentially Neutral. Ultimately though, it may all come down to oil prices.

Economic Calendar: Consumer Confidence (2/23), EIA Petroleum Status Report (2/24) Durable Goods Orders (2/25), GDP (2/26), Personal Income and Outlays (2/26)

Some of the major earnings announcements on deck: FIT, CRM, AL, BRK.A, VRX.

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