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Market Update

No One Wants to Play Scrooge on Street. Is That a Good Thing?

December 19, 2014

Things get a little crazy this time of year. Help me remember: was it just a week ago that the stock market was skidding along a giant oil slick as crude prices tumbled?

What a Difference a Week Makes. The Dow Jones Industrial Average (DJIA) has put up 700 points in two days, the best back-to-back performance since 2011. A week ago, bulls hoped the S&P 500 (SPX) could salvage the 1950 line. Now, the buzz is all about a chance to clear 2100. The big market moves have cushioned what can be a particularly volatile time as this week marks the “quadruple witching” expiration of certain stock futures and options contracts. Expect some lingering witching impact, but it looks like the bulk of transactions are in the books. One key measure of sentiment, the CBOE Volatility Index (VIX), has shed some 30% over a two-day stretch after it ran into congestion just above the psychologically significant 20 mark.

A Little Reality. Is there reason for concern given the scope and speed of this stock bounce? Oil has settled into at least a near-term range of $54-$56 a barrel and this apparent trading base may offer the stability that many stock traders wanted. Still, the push-pull effect of weaker oil on consumer spending (positive) and on economic growth in resource-reliant countries (negative) isn’t going away overnight. Europe and other major economies are idling away in an uncertain period for growth. U.S. job creation is good but may not be as widespread as one would hope. But…for now at least the Federal Reserve seems content with the pace of U.S. growth and willing to slowly wean Wall Street off ultra-loose interest-rate policy. The market, it seems, is just fine with that. Will the Street get antsy in coming weeks?

Year-End Window Dressing? No predictions here, but fairly safe to say that the market remains underpinned by a bias to buy (say that five times). That’s simply a function of the calendar. Of course, outside forces could still take over trading. They always can. But as for following the money, I’m interested to see if major players come in for fixed income because they’ve been parked in cash and want to lighten cash. Or will they be net sellers of fixed income simply to jump on to what they hope is an equities bounce in the last week of the year?

Good trading,

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