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Record-Popping New Year for Stocks?

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December 31, 2014

Early stock indicators flash green Wednesday, meaning there’s a chance—maybe a slim one—that the major market indexes go out at the year’s highs. Um … all-time highs in that case. If enough funds flock in as buyers in last-ditch “window dressing” to own more stocks in 2014, Wall Street could have enough momentum to take the S&P 500 (SPX) to 2100. I’ll concede that it may take a heroic effort to hit this psychologically significant mark in the final day of 2014 trading. But, hey, most of us like a heroic tale. 

Watch VIX.  The CBOE Volatility Index (VIX), the market’s “fear gauge,” has been an interesting mover in this holiday-shortened week. First, it nudged higher on Monday, a surprise move, perhaps, in an up-day for the SPX. Then VIX rose some 6% in Tuesday’s session, as might be expected given the slight drop in SPX. The two days of gains pushed VIX back above 16 (see figure 1), but still well off the move above 25 in mid-December when oil’s plunge brought on a cold sweat on the Street. Still, it will be interesting to see if any further VIX decoupling is seen as 2015 gets underway. 

FIGURE 1:

The CBOE Volatility Index (VIX) is well off the 25 hit in mid-December and looks to end 2014 up about a point from where it wrapped 2013. Source: TD Ameritrade’s thinkorswim® platform. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.

Bonds Grab Our Attention, Too. As some global investors scampered away from the volatility brought on by Greece’s emergency election and oil market uncertainty one place they sought potential refuge was in the U.S. government bond market. As a result, U.S. Treasury bonds have gained for five straight days, enough to send the benchmark 10-year yield down to 2.18%. Yes, the Federal Reserve has indicated interest rates will begin to head higher in 2015 but actual market rates indicate the Fed may not be so hasty. Right now, the market is working against the Fed’s aim of weaning Wall Street off ultra-low rates. Safe to say that as long as the world views the U.S. as a relative safe haven, demand for bonds will likely keep interest rates in check.

 ‘Tis the Season for Data Volatility. Applicants for U.S. unemployment benefits jumped by 17,000 in the final week of December to the highest level since Thanksgiving. That’s a headline that gives stock bulls a few shivers. Initial claims are often quite volatile from Thanksgiving until the end of January because of the holidays, potentially poor weather, and big waves in seasonal hiring. That means it’s more important to look at the longer-term trend. That trend, in fact, held pretty steady and indicates an improving job market if a little too slow for some tastes. Today’s report showed that initial jobless claims rose to 298,000 in the seven days ended Dec. 27 from a revised 281,000 in the prior week. Here’s the cleaner number: the average of new claims over the past month dipped by 250 to 290,750. 

A happy and healthy 2015 to you and yours!

 Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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