Week of January 25, 2016
The first three days of the market were ugly with US stock indexes falling more than 3% before regaining some ground. Despite the downward trend, news of possible Central Bank stimulus from Japan and the European Union as well as the bump in oil gave equities the much needed boost the end of the week.
US Stock Indexes posted the first positive week for 2016 with the Dow Jones Industrial Average up 0.7% and the S&P 500 closing up 1.4%. Around the world, Japan’s Nikkei Stock Index was up nearly 6% on Friday after it dipped into bear market territory on Wednesday.
Hogging the Headlines
Every week, it seems oil is breaking new headlines and making its way into our commentaries. Crude Oil closed down 6.7% last Wednesday, putting up the worst one-day loss since September 2015. Oversupply concerns from 2015 have morphed into worries over weak demand in 2016 as investors are focusing more attention on China, easily the commodity’s biggest consumer at 12% of world supply. In fact, economists believe developed countries are likely past their peak oil consumption levels, leaving emerging markets countries, including China, to drive oil demand over the next few decades. Despite the sharp selloff in the middle of the week, oil prices stabilized and bounced up Thursday and Friday to close above $30 a barrel on a surprise uptick in demand.
Source: http://www.wsj.com/articles/oil-sinks-below-28-a-barrel-to-12-year-low-1453267718
European Central Bank
The European Central Bank’s (ECB) president, Mario Draghi, indicated that more stimuli may come in March as the inflation targets for the 19-country European Union still appear to be out of reach. The ECB’s economists were expecting inflation to average roughly 1% for 2015; however, with the deflationary drop in oil, those forecasts are likely to be missed. While the comments from Draghi were not entirely positive, Eurozone equity markets rallied on the possibility of additional stimulus. In the most recent ECB meeting, interest rates were left unchanged, maintaining the policy of negative rates for the region and continuing the bond-buying program that was initiated in March of 2015.
Inflation
The Consumer Price Index, a measure released by the Bureau of Labor Statistics, fell modestly in December as the drop in energy goods outpaced a rise in the cost medical care and rents last month. When taking out the cost of energy and food, the core CPI figure actually rose 0.1% to settle up 2.1% for 2015 and marking the highest increase since 2012. However, the Federal Reserve’s own measure of inflation is well below core CPI and its stated 2% inflation target. This is important because the Federal Reserve has been explicit that the economy meeting their inflation targets is of the triggers for additional rate increases. Weaker inflation figures could push the next interest rate increase further into 2016 and possibly cause the Fed to miss their target rate by year end, signaling that the economy may not be meeting the Fed’s expectations. 
Fun Story of the Week
Our five closest planetary neighbors will all be visible to the naked eye, making it the first time since January 2005 that these planets shared the same night sky. Mercury, Venus, Mars, Jupiter and Saturn will all be on display pre-dawn starting around late January to late February. When facing south, the planets will be lined up along a diagonal line with Mercury, Venus and Saturn closest to the horizon. Going up from left to right will be Mars and then Jupiter. If professional and amateur astronomers alike miss the spectacle, the quintuplet will reappear this year around August 13th to 19th.
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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 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. * The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. * Japan’s Nikkei Stock Index a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the U.S. In fact, it was called the Nikkei Dow Jones Stock Average from 1975 to 1985. * 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.
Sources:
Wall Street Journal, January 2016, http://www.wsj.com/articles/ecb-leaves-rates-unchanged-1453380508
Wall Street Journal, January 2016, http://www.wsj.com/articles/oil-sinks-below-28-a-barrel-to-12-year-low-1453267718
USA Today, January 2016, https://www.usatoday.com/story/tech/sciencefair/2016/01/18/planets-morning-sky-january-february/78962134/
Wall Street Journal, January 2016, http://www.wsj.com/articles/global-stocks-slide-on-oil-rout-1453280805
CNBC, January 2016, http://www.cnbc.com/2016/01/19/oil-prices-fall-further-on-glut-worries-us-crude-slumps-below-28.html
Wall Street Journal, January 2016, http://www.wsj.com/articles/global-stocks-slide-on-oil-rout-1453280805
Wall Street Journal, January 2016, http://www.wsj.com/articles/asian-stocks-up-with-nikkei-setting-strong-pace-1453423021
Wall Street Journal, January 2016, http://www.wsj.com/articles/global-stocks-propelled-by-oil-bounce-1453452066