The markets rebounded this week replenishing nearly all the losses associated with the previous two weeks.  Oil prices remained subdued, so what caused the market rebound?

Much like the “R-E-L-A-X” quote from early in the football season, the Federal Reserve Board’s (FRB) key word on Wednesday was “patient”. This minor change in language buoyed equity markets and increased investor confidence. It was an indication that a rate hike would come later rather than sooner from the FRB. Specifically the FRB changed wording to indicate that they would be patient in regards to economic data and potential rate hikes. 2015 year end rate expectations are now 1.125% from the current 0.0 – 0.25%.

This unexpected change to rate language was one of the major catalysts for the Dow Jones’ increases on Wednesday and Thursday. That market rallied over 700 points in two days… This was not the only data that spurred market growth. In general there was favorable market data that accompanied the FRB wording; also oil stabilized as the week went on.  This provided the hope that a resistance level for oil prices had been reached.

US Industrial production picked up in November, increasing 1.3% month over month. Initial jobless claims fell 6,000 and ongoing claims fell 147,000[1]. There was also disappointing data that pointed to the moderation of current economic conditions. Building permits and manufacturing indices were down from the prior month. Core CPI increased by 1.7% year over year, down from 1.8% last month. In all, while some data missed expectations, they still indicated an expanding economy with subdued inflation.  Deflation across much of the global economy may become a concern for the US in 2015. This concern is likely playing a role in the FRB’s “patient” statement…

International

While International markets do continue to face deflationary concerns, Germany, the largest Eurozone economy, showed signs of healing last week. They had improved data across several metrics; PMI data, economic sentiment, business expectations, and consumer climate.

China showed continued signs of contraction, which will likely prompt additional stimulus action for the second largest global economy.

The Russian ruble has continued to slide with western sanctions persisting and oil prices plummeting.  In an effort (unsuccessful) to stop the bleeding the Bank of the Russian Federation increased interest rates from 10.5% to 17%[2]. If oil prices continue to fall it could have dire consequences for a Russian economy that relies on the black gold as approximately 50% of its annual export income[3].

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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

[1] www.investing.com – economic calendar

[2] www.mfs.com – week in review

[3] www.troweprice.com – weekly market wrap-up