The Dow’s up
more than 300 points today, its best day in 14 months, and that’s on top
of a 288-point surge Wednesday. What’s driving the sudden surge on Wall Street?
The Standard
& Poor’s 500-stock index is up big today, too, extending its two-day gain
to 3.75%, its best two-day gain since Jan. 2, 2013.
Here are
five things driving stocks higher — after a seven-day scare due to
plunging oil prices and a currency crisis in Russia that briefly knocked the
market down 5% from its Dec. 5 all-time high.
1. Friendly
Fed. The Janet
Yellen-led Federal Reserve reiterated its “lower for longer” message for
interest rates yesterday. The Fed coined a new expression — “patient” — to
describe the way they will pursue the transition to higher rates next year.
Make no
mistake, says Alan Skrainka, chief Investment officer at Cornerstone Wealth
Management, the stock market move to the upside the past two days is all about
the Fed saying it will take it slow when it comes to future rate hikes.
“This (stock
rally) is likely the result of increased confidence that the Fed will raise rates
very gradually in light of recent events – mainly the plunge in oil prices and
slowing global growth,” says Skrainka.
2. New rally,
same two reasons. Today’s rally is being driven by the same two things that have been
driving the bull market for years: “low rates and easy money and little in the
way of alternatives to stocks” for investors looking to generate acceptable
returns, says Bill Hornbarger, chief investment strategist at Moneta Group.
“I think the
drivers are the same,” he says. “The improving U.S. economy and drop in energy
prices,” he adds, are “aiding investor confidence to own equities.”
3. Like greed,
cheaper oil, is good. Stock investors are rethinking their initial negative
reaction to the plunge in crude prices, and may be refocusing on the fact that
a lower price at the pump “is a huge positive for the U.S. and world economy,
except for Russia and OPEC,” says Nick Sargen, senior investment adviser
at Fort Washington Investment Advisors.
“For a while
the market was focused on the losers from lower oil prices rather than on the
winners,” says Sargen. “It seems like the market had a few ‘bad hair
days’ and suddenly discovered everything would be OK.”
4. Stock
inventory low. Charles Biderman, CEO of TrimTabs Asset Management, a firm that tracks
the cash flows in and out of the stock market and mutual funds, says the main
stock market driver is simply “supply and demand.”
In the first
three days of this week, he says there has been “over $30 billion of new cash
takeovers of public companies and stock buybacks.” That trend results in less
stock for sale on the open market. In contrast, there has been “less than $2
billion of new stock offerings” brought to market.
Biderman says
if the chaos surrounding the plunge in oil prices subsides, stocks could
skyrocket even higher. The reason: There’s still an awful lot of money chasing
a home.
“If (there’s)
no financial collapse due to lower oil prices, stock prices could melt up given
the huge amounts of cash around,” says Biderman.
5. Investors
reverse “bearish” bets. Another reason for today’s massive stock market
rally is investors are reversing earlier bets against the stock market, and are
engaging in so-called “short covering,” says Mark Luschini, chief investment
strategist at Janney Montgomery Scott.
Many investors
had been shorting the market, or trying to profit when prices fall by selling
borrowed shares with the hope of buying them back later at a lower price. But
with the nearly 600-plus point rally in the Dow the past two sessions, that so-called
shorting strategy did not work out. So those investors are buying the borrowed
shares back now for fear stocks will climb even higher and result in even
heavier losses.
Many portfolio
managers are also buying with both hands today because they can’t afford to
fall further behind their market benchmarks, such as the Standard & Poor’s
500-stock index, which many portfolio managers are measured against, Luschini
adds.
“Particularly with
funds that are behind their benchmarks, which is prevalent this year,
(many money managers) are having to try and play catch-up,” says Luschini.
Source:http://americasmarkets.usatoday.com/2014/12/18/5-reasons-why-stocks-are skyrocketing/?utm_source=feedblitz&utm_medium=FeedBlitzRss&utm_campaign=usatodaycommoney-topstories
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