Sunday, March 18, 2012

S&P 500 Posts Best Weekly Gain Since December

US markets posted mixed results on Friday, after the Thomson Reuters/University of Michigan consumer sentiment index for February posted a lower-than-expected reading. The index fell in February from 75.3 to 74.3, and was lower than the 76.0 that economists expected.

On Friday, the S&P 500 rose slightly by 1.57 points or 0.11% to 1,404.17. The Dow fell 20.14 points or 0.15% to 13,232.62. For the week, the Dow gained 2.4%, while the S&P 500 posted its 5th consecutive week of gains.

Stress Test Results Boost Market

Most of the market's gains this week was on Tuesday, because of the results of the stress test on US banks and Fed Chairman Ben Bernanke's statement after the FOMC meeting. The stress test results indicated that of the 19 large banks tested, only 4 banks failed. Several banks were allowed to increase their dividends following the stress test. Following the results, shares of JP Morgan rose 7%.

US Federal Reserve Boosts Economic Outlook

Also on Tuesday, Federal Reserve Chairman Ben Bernanke issued a statement following the FOMC meeting. He improved the wording used to describe economic growth for the next several quarters, from “modest” to “moderate”. Meanwhile, monetary policy remains unchanged, with the current low interest rate to be kept in place until late 2014. A new round of QE was also not mentioned, and Bernanke reiterated continuing Operation Twist.

Looking Ahead to Next Week

With the S&P 500 having gained about 30% since October 3rd, a 5-10% pullback is likely. In addition, there is concern that Portugal would need to have its debt restructured, since its debt have been at unsustainable high yields. Furthermore, a Greek election is expected in April or May, and the new government's ability to implement tough bailout conditions is in question.

Brent crude has rebounded to settle above $125/barrel this week, as Iranian exports will soon be restricted. The high price of oil presents another headwind for stocks. Thus, North American markets will likely trade sideways or head lower next week.

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