By Rick Glaze
A nosedive in oil prices helped fuel a rally in stocks Friday that saved the large-cap indexes from an otherwise dismal week.
The Dow Jones industrial average and the S&P 500 both gained on the week, up 0.3 percent and 0.4 percent respectively. Both indexes are representative of the broad market, and both tend to measure larger company stocks. Two indexes that measure the performance of smaller stocks were down for the week: the S&P 600 dropped 1.7 percent and the technology-heavy Nasdaq shed 0.6 percent. Trading volume was higher in Friday’s rally, signaling a stronger commitment from institutional buyers. Crude oil dropped more than $2 per barrel Friday. The market action seemed to acknowledge that higher oil inventories would decrease demand going into the summer driving season.
The stock market is in a trading range that is characterized by up-and-down days back to back or in close proximity.
This action is reminiscent of the 1980s, when the country had steady overall growth, a reasonable economic climate and interest rates on their way down. The average rate of return exceeded 15 percent per year, but to many it never seemed like it was that good. Those investors who adopted a longer-term perspective were rewarded. Today interest rates are hovering at historically low levels, inflation is controlled, and unemployment, nationally, is very low. The benchmark 10-year Treasury bond is holding at around 4.2 percent, near its year-end level. The spike to 4.7 percent in March had the markings of an inflation panic and was short-lived. At this writing the Federal Reserve Board is expected to raise the short-term rate a quarter point to 3 percent this week, still a very low level historically.
Meanwhile, the durable goods orders are slowing. Durable goods are big-ticket items that have a life expectancy of more than three years, such as cars, refrigerators and furniture. This may indicate to the business community that economic growth is slowing. But the drop in oil prices and a similar pullback in commodity and raw material prices may prove to be a boost for manufacturers.
Rick Glaze is the president of Glaze Capital Management, providing wealth management solutions for busy, successful people in Silicon Valley.
