Week of December 28, 2015
The Santa Claus rally was in full effect last week as equity markets soared in the holiday-shortened week. The S&P 500 jumped 2.8%, bringing the index back to even for the year.
The Dow Jones Industrial Average and Nasdaq Composite each gained 2.5%. Some of the best performing sectors during the week were the ones hardest hit during the year. After a late week stabilization in oil prices, the energy sector jumped 5%. Commodity-related stocks rose 4% as well. Both remain down by double digits for 2015.
Oil’s Slippery Slope
Oil hit an 11-year low at just over $36 for a barrel of Brent Crude last Monday before rallying later in the week. This equated to a 19% drop at its lowest for December and the quickest decline in the commodity since the recession of 2008. Excess supply has been the driver and oil production is showing no signs of abating as global producers are close to all-time highs. This, coupled with inevitable release of Iranian and Libyan barrels, continues to put downward pressure on the price of oil as we enter the last few trading days of 2015. However, it has shown some signs of life from time to time. Late in the week, oil prices bounced 9% off of the historic lows to finish above $38.
Mergers and Acquisitions
As we look back at 2015, the list of mergers and acquisitions $50 billion or more broke a 17-year record. One would have to go back to the tech boom of the late 90s to see activity similar to this year’s. While the type of companies involved in these record-breaking deals varied, the driver was almost uniformly the same. Many of these companies were seeing slower growth and M&A activity presents a path to expansion. Low interest rates and high stock valuations made financing the deals all that much easier. Topping the charts were the Pfizer-Allergan and Anheuser-Busch/Inbev deals which came in at $160 billion and $120 billion, respectively.
Jobless Claims Fall
Last week, the Labor Department reported just 267,000 filings for unemployment benefits for the week ending December 19th. This was down by 5,000 people from the prior week and below consensus expectations. It is also the lowest level in four weeks. We would note that this figure is notoriously volatile, and a four-week moving average, which smooths out some volatility, increased slightly to 272,500 claims. However, jobless claims have been below 300,000 since March 2015, and for the entire year we will witness the fewest number of initial filings for unemployment benefits since 1973. Fewer than 15 million people have made initial requests for benefits this year, nearly half as many in 2009. This demonstrates the continued momentum with the improving employment picture.
Fun Story of the Week
What’s the biggest gift you’ve ever given? Big is relative. It can be big in terms of the cost, time or effort. There is a group of Norwegians who are taking “big” to a new level. Bjorn Geirr Harsson, the former chief engineer of the Norwegian Mapping Authority, has proposed giving Norway’s neighbor, Finland, a mountain to celebrate its 100th anniversary of independence. The mountain, Halditsohkka, stands at 4,367 feet and a mere 650 feet away from the Finnish border. If approved, this would now be the tallest peak in Finland. The Finnish embassy is aware of the proposal and it appears most seem in favor of the friendly shift in borders. While the gift is substantial indeed, Norway remains the more mountainous of the two with almost 200 peaks reaching 6,500 feet or more.
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* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial advisor. * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The Nasdaq Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. * The Dow Jones Industrial Average is an unmanaged group of securities demonstrating how 30 large publicly owned companies have traded and cannot be invested into directly. * Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. * Past performance does not guarantee future results. * Charts and graphs should not be relied upon as the sole basis for any investment decision and are for general informational purposes only. * Consult your financial professional before making any investment decision. * This newsletter was prepared by CWM, LLC. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
CNBC, December 2015, http://www.cnbc.com/2015/12/20/brent-crude-at-2008-low-as-market-rout-heads-into-christmas.html
Bloomberg, December 2015, http://www.bloomberg.com/gadfly/articles/2015-12-22/mega-deals-of-2015-won-t-all-yield-mega-payoffs
The Atlantic, December 2015, https://www.theatlantic.com/international/archive/2015/12/peak-present/421266/
Barron’s, December 2015, http://www.barrons.com/articles/stocks-rise-3-leaving-s-p-500-flat-on-year-1451108350