US stocks went from famine to feast this week, starting out fearful of crashing oil prices, but finishing on a high after a “Santa Claus rally.”
The turnaround came on Wednesday, the first of three buoyant sessions that by week’s end left the S&P 500 in positive territory for this month.
“This week was remarkable as far as the velocity of the market’s move,” said Michael James, managing director of equity trading at Wedbush Securities Inc.
The Dow Jones Industrial Average shot up 523.97 points (3.03 percent) to end the week at 17,804.80, while the broad-based S&P 500 jumped 68.32 (3.41 percent) to 2,070.65 and the tech-rich NASDAQ Composite Index gained 111.78 (2.40 percent) at 4,765.38.
The week opened with the same grim sentiment that led to last week’s global equity rout. Adding to worries about tumbling oil prices was anxiety over the crashing Russian ruble, which has lost nearly half its value this year compared with the US dollar.
The ruble’s drop “is messing with the US stock market’s typically festive holiday spirit as it is evoking concerns about the potential for default risk, financial risk and economic risk,” briefing.com analyst Patrick O’Hare said on Tuesday.
However, markets began reversing course on Wednesday morning in anticipation of a US Federal Reserve policy announcement later in the day. Following a two-day meeting, the US central bank left in place market expectations that it may raise interest rates only in the middle of next year and not sooner, while giving a fairly upbeat assessment of the economy.
Fed Chair Janet Yellen offered reassurances that sharply lower oil prices are a net-positive for the economy and that fallout from struggling Russia is likely to be limited.
US stocks rose significantly after the Fed’s announcement and stormed higher again on Thursday, with the Dow jumping more than 400 points. The gains were smaller on Friday, but the S&P 500 still finished the week within shouting distance of a record.
“The Fed basically said what the market wanted to hear, that is, they’re not going to raise interest rates before what the market was expecting, which is some time from the midpoint of next year, so that was encouraging,” Ventura Wealth Management portfolio strategist Tom Cahill said.
James said the market’s response to low oil prices and the crashing ruble was comparable to its reaction to other worries this year, such as the Ukraine crisis and anxiety over tech sector valuations.
“We’ve seen these types of dislocations several times over the last two years,” he said. “Every time it’s been proven in hindsight that weakness is to be bought and the market continues to be in an upward trend.”
In corporate news, Oracle Corp surged after reporting second-quarter earnings that translated into US$0.69 per share, US$0.01 above analyst expectations, citing strong subscriptions for cloud services.
Cruise companies like Carnival Cruise Lines and Royal Caribbean Cruises Ltd scored on the historic rapprochement between the US and Cuba as Washington launched measures to ease a five-decade trade embargo.
However, iconic companies said their results would be dragged down by the lofty greenback.
Coca-Cola Co projected a 7 percent headwind from the strong US dollar in the fourth quarter and a 5 to 6 percent drag next year. Nike Inc also cited currency effects in its forecast of future product orders, which disappointed markets.
Next week is expected to be quiet for corporate news. Economic reports include the third and final estimate of third-quarter GDP, as well as existing home sales and durable goods orders for last month.
Markets are to close early on Wednesday and will be shuttered on Thursday for Christmas.
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