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Stocks Up as Oil, US Dollar Recover

People walk past the Nasdaq MarketSite in New York, April 5, 2016.

Stocks opened higher on Friday. Oil and the U.S. dollar were in recovery mode, following losses on Thursday that sent the S&P 500 back into the red for the year. The surge, the latest in a week of very volatile market moves, occurred despite any major news to justify it.

Oil was up more than 6 percent, boosted by expectations U.S. production will continue to decline and optimism about the U.S. economy. Data earlier this week showed an unexpected drop in crude inventories and a strong rise in demand from refiners.

Once again, newswires are saying it was the Federal Reserve to the rescue on Thursday night to help lift market sentiment.

Chair Janet Yellen said the U.S. economy was “on a solid course, not a bubble economy” at a gathering with former Fed leaders Alan Greenspan, Paul Volcker and Ben Bernanke.

“The main message was well-delivered, using the history of the four speakers, they reminded people of how many crises they had steered us through in the past and how worried we all were at the time and how crazy they seemed at the time, but how in the end, they were right and wise and fair and just and it all works out so BUY BUY BUY because all shall be well,” said Phil Davis of Phil’s Stock World. “It's the same story we tell you every time the market goes dark and you are worried about the economic monsters in your closet, but it sure works to calm the investors down - every time.”

Despite the recovery in early trade, stocks sold off late in the session, and the indexes were on track to post losses for the week. The S&P 500 was down just over 1 percent for the week, which is the biggest weekly decline since February. A drop in biotech shares held down the Nasdaq.

Trading Week Ahead:

Alcoa kicks off the unofficial start of earnings season, followed by the big banks on Wednesday with JPMorgan Chase. Heavyweights Bank of America and Wells Fargo report on Thursday, followed by Citigroup on Friday.

Not only will we be listening for the individual earnings results, we also want to hear what management has to say about the current state of monetary policy and their ability to grow earnings in a low interest rate environment. Typically, banks perform better when interest rates are at a higher level as it allows them to grow margins at a better rate.

According to S&P Global Market Intelligence analyst, Lindsey Bell, only three of 10 S&P 500 sectors are projected to have positive earnings growth for the first quarter, with consumer discretionary, telecommunications and healthcare leading the way. The energy sector will post a quarterly loss for the first time since the firm started collecting data.

Other sectors with large declines in growth are materials, industrials and technology. Excluding the energy sector drag, S&P 500 earnings growth would still be negative at -3.6 percent.

“With expected disappointing corporate earnings and little economic growth, this is not the time to be complacent in the U.S. equity markets. Nothing has changed over the course of this 14 percent rally from the February 11th low. This rally has been fueled by central bank intervention and short covering,” said Steve Kalayjian of the Kalayjian Report.

Important March economic data will be released in China this week, including the Consumer and Producer Price Indexes, Imports and Exports, and first quarter GDP. Analysts expect to see a growth rate of 6.7 percent.

Global central bank rhetoric really has been the driver of the S&P 500 and all of the major indices. The Banks of Canada and England will deliver their respective interest rate decisions, which will certainly have an impact on the market as monetary policy actions have been driving the markets. In addition, several Federal Reserve speakers will be making presentations on the economy across the U.S.

While the Fed is not delivering any policy decisions this week, their commentary is picked apart by traders, analysts and economists for clues into future moves. Economic data such as employment and manufacturing reports does not seem to move the needle anymore as long as central banks remain accommodative.

That said, there are some key data to be aware of in the U.S. including: March Retail Sales, Producer Price Index, Industrial Production, and Crude Oil and Natural Gas Inventory Levels.