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 The S&P 500 rallied 2 percent Friday to eke a slight gain for the
week, the ninth up week out of the last 10, after the U.S. economy
added more jobs than expected in November in a show of the economy's
resilience.
The data likely paved the way for the Federal Reserve to raise
interest rates this month for the first time in nearly a decade,
while still keeping the U.S. central bank committed to a shallow and
slow pace of increases.
"The story today in the U.S. is growth with modest inflation, which
is great for equities," said Paul Zemsky, chief investment officer,
multi-asset strategies and solutions at Voya Investment Management
in New York.
"I see nothing on the calendar outside a geopolitical event that is
going to make them (the Fed) change course at this point," he said.
Markets have for weeks expected the Fed to raise rates after its
Dec. 15-16 meeting.
Earlier in the week, stocks sold off after the unwinding of short
bets on the euro seeped into most asset classes. The euro posted its
largest daily gain against the U.S. dollar in more than six years on
Thursday after ECB President Mario Draghi's statement fell short of
expectation for further easing.
Some of the selling was related to leveraged funds that were likely
forced to close positions as volatility jumped. According to Bank of
America research, these funds, which were heavily involved in the
dramatic stocks selloff in late August, had returned to the level of
leverage they had prior to that downturn.
Draghi on Friday said the ECB could deploy more stimulus if needed,
leading traders to reestablish short positions in the bloc's single
currency.
"In many ways he was trying to undo some of the damage from the
perception that he didn't do enough," said Quincy Krosby, market
strategist at Prudential Financial in Newark, New Jersey.
In contrast to Draghi, she said, Fed Chair Janet Yellen is not
expected to surprise markets.
"As long as she sticks to the script that she wrote the market
shouldn't be shocked. The market is again factoring in the rate
hike, today's good (payrolls) news should be good news that
ultimately is a positive."
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OIL, SEASONALITY SUPPORT BULLS
Adding to the strong jobs data as a bullish stocks catalyst, crude
prices resumed their fall after news that the Organization of
Petroleum Exporting Countries was planning to maintain its
production near record highs despite already depressed prices.
"The headwind of falling oil in 2015 in terms of earnings will
become a tailwind in 2016," said Steve Chiavarone, associate
portfolio manager at Federated Investors in New York, pointing to
the benefits of lower oil prices for main street.
"When you take a wide look at the consumer, not just retail sales,
the consumer looks healthy."
Retail sales data out next Friday could confirm the upbeat state of
consumers heading into the key holiday season.
The end of year seasonality could also be supportive of higher stock
prices. December is historically the best month for the S&P 500
according to data from the Stock Trader's Almanac.
"We should enjoy the rally and perhaps wait until we transition into
the new year to focus back on fundamentals," Krosby said.
(Reporting by Rodrigo Campos; Editing by Nick Zieminski)
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