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Weekly Market Update – March 11, 2016

The Dow gained 218 points on Friday, lifted by a rally in Europe, an upturn in crude oil prices and strong U.S. economic data. For the week the Dow was up 1.1% and for the year the index narrowed its losses to -1.2%.

The US equities market notched a 4-week winning streak. Energy stocks outperformed the market as the oil price rebound continued. Crude settled at $38.5 per barrel as U.S. oil drilling rigs fell to the lowest level since 2009. Data showed a less-than-expected inventory built on Wednesday and indications that oil prices have bottomed out. The timing of a meeting between Russia and OPEC producers to finalize the cap on oil production has been a major area of uncertainty. A meeting had been expected to take place this month, but the date has yet to be finalized.

Financials also outperformed, led by banks after the European Central Bank President Draghi delivered a positive surprise on Thursday with a package of aggressive actions including rate cuts to -0.4% and a quantitative easing expansion. While market reaction was initially positive, Draghi’s admission in the press conference that rates may not go any lower sparked a significant reversal. On Friday the benchmark Stoxx Euro 600, which is similar to the S&P 500, gained 2.6% as investors hoped that the European Central Bank’s latest blast of stimulus policies would help revive the region’s economy. On Friday, the European Commission expressed interest in softening capital rules in order to increase European banks’ flexibility to make interest payments on their additional Tier 1 bonds. On the heels of such favorable regulatory news, European bank preferreds continued their recovery. US preferreds moved higher as well.

In the U.S., the initial jobless claims fell by 18,000 to 259,000 last week, the lowest amount since October and one of the lowest of the current expansion. Strong economic data pushed up the odds of another interest rate hike later this year, leading 10 year Treasury yields to rise over 8 basis points to 1.98%. More clarity will come when the Fed meets next week.

Next week’s economic calendar highlights include the Fed’s Rate Decision on Wednesday (Mar 16).

Have a nice weekend,

Natalie Do

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Ulland Investment Advisors

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