Equity markets initially cheered the Federal Reserve’s decision to lift rates for the first time in nearly a decade. The rally faded towards the end of the week, US equities had a particularly bad day on Friday. The S&P 500 finished the week lower, as this index closed back at the 2000 level. This level has provided support for the past couple of months. The Vix closed on Friday night just above 20, this is often seen as pivotal as it can indicate stress increasing.
The fear that the Federal Reserve’s move would push the dollar materially higher have so far not been met. The dollar appeared to have anticipated the move finishing the week only modestly higher.
Oil and credit markets have been the focus of investor concerns recently, taking over possibly in the short term from China. The fall in the oil price, in theory, should help boost the consumer, in turn helping boost the global economy. In contrast the oil price and equity markets moves seem correlated, as investors consider the weakness in oil prices reflects a weak global economy. Oil fell back towards its recent lows as the Brent crude price once again fell below $35. Credit markets have stabalised this week, but it may well be that the oil price and the credit markets may start to move in tandem. Investors are starting to fear the banks’ exposure to oil infrastructure projects that are now uneconomic at these oil prices.
The week ahead investors will hope for a Santa rally, there will be a couple of US economic data points ahead of the seasonal festivities that may dictate whether this expectation will be realized. On Tuesday we get the final reading for Q3 GDP, and on Wednesday November’s durable goods orders. There was a strong pick up in October; analysts are expecting a small fall in November. US macro data has recently disappointed, economists and investors will hope this trend will not continue.
There is not much from China and Europe this week, as is the case for UK, the focus will be the final reading for Q3 GDP released on Wednesday.
We are coming to the end of a poor year for money managers. Investors will hope that the combination of low inflation, liquidity and modest economic growth will help spur on equity prices in 2016.