January 25, 2016
U.S. stocks surged on Friday, capping the S&P 500 with its best two-day rally in three months on speculation that central banks in Europe and China may expand stimulus measures to support their respective economies. Recovering from a new 12-year low of $26.55/barrel on Wednesday, West Texas Intermediate (WTI) oil prices likewise rallied—gaining $3.84 over the past two days—posting the strongest back-to-back oil gains since 2009. Investors drew relief following comments from European Central Bank President Mario Draghi that policymakers may increase stimulus in March, while China's Vice President Li Yuanchao pledged action to limit market volatility. Earlier in the week, China reported fourth quarter GDP growth of 6.8%, capping 2015 with the slowest annual growth in 25 years, prompting widely-held views for further central bank easing. The U.S. joined a global rally on Friday, helping push the MSCI All Country World Index (ACWI) to rebound nearly 2.7%, capping the week with almost a 1% gain.
For the holiday-shortened trading week, the S&P 500 rose +1.43%, its first weekly gain in 2016, and trimming its year-to-date (YTD) loss to -6.61%. The Dow Jones Industrial Average finished the week up 105 points, representing a +0.66% gain. And EAFE (developed international) gained +.21%
What We’re Reading
Europe's Central Bank Chief Hints at More Stimulus -- MarketWatch
Crude Oil Jumps 9% Despite Weekly Production Increase -- MarketWatch
Chart of the Week:
Emerging Market Investment Funds Begin to Trend Notably Lower; Trend Snaps a 30 Year Run
According to data released from the Institute for International Finance (IIF), a net total of $735 billion has been withdrawn from emerging markets in 2015, following $111 billion in outflows in 2014 (see chart above). Last year's total far exceeded the IIF's estimate for $540 billion worth of outflows, illustrating just how quickly sentiment eroded in the year's final months.
Unsurprisingly, much of money running for the exits occurred in China, where increasingly slow growth radically reshaped investor expectations over the last year. The IIF estimates that some $676 billion of net capital-both officially and through unrecorded channels-fled the People's Republic last year. The chart helps explain why emerging market currencies such as China's yuan, Russia's ruble and Brazilian real are so weak. Likewise, it also helps explain why the US dollar is strong - and why U.S. Treasury prices are so well supported.
Articles chosen and summarized by the Cetera Investment Management team. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.