Stocks soar to highest level in 2016
NEW YORK (CNNMoney) — From Wall Street to Main Street, investors are doing a happy dance. On Wednesday, the U.S. stock market hit its highest level yet in 2016.
After starting the year in meltdown mode, things are starting to look bright in the world of stocks. The Dow is at the best level it’s been this year, even though it’s up only about 1.5%. The S&P 500 has also notched a positive 1% gain.
It’s a dramatic revival for a market that had tanked more than 10% by early February. Some were ready to proclaim that the bull market was finished.
Now investors are making money again. Even popular tech stocks that got hammered earlier in the year such as Apple and Google are on the upswing. And April is almost here. It’s traditionally a very positive month for stocks.
“Snow White didn’t have a fairy godmother. However, we do: Fed Chair Janet Yellen,” wrote investment strategist Ed Yardeni in his morning note.
Stocks are surging for three key reasons:
1. The Federal Reserve pulled out its best pain reliever
The Fed knows how to calm the markets. America’s central bank is holding off on raising interest rates for a while longer, which is what many investors want.
On Tuesday, Fed chair Yellen reassured investors that the Fed will “proceed cautiously,” especially given how shaky the global economy is. Translation: The Fed almost certainly won’t raise rates in April and it’s paying attention to market sentiment. Stocks soared in response.
But… While the Fed has rescued the market (and, to some extent, the economy) in recent years, it is “running out of ammo” to help in case the need arises. Yellen has used her words to soothe, but will that be enough if a real crisis comes?
2. Oil went from under $27 a barrel to $40
Cheap oil was supposed to be a big boost to the U.S. economy. The thinking was that Americans would save on gas and spend that money on other items. But investors learned that there is a point when oil gets so cheap that it hurts companies who can no longer pay their bills, go belly up and take out jobs.
When crude oil fell below $27 a barrel this year, investors panicked. But oil staged a comeback in mid-February. It now trades around $40 a barrel. Stocks rode that surge too.
But… The question is whether it will last. The world still has way more oil supply than it needs. That makes it difficult to see how prices will rise much more anytime soon.
3. China (and most of the world) looks a bit better
The market freakout earlier this year started in China. The world’s No. 2 economy clearly isn’t growing at the pace it was before. But no one knows just how bad the slowdown is. The Communist Party still claims 6.5 to 7% growth — only a hair below last year’s.
When China tinkered with its currency in early January and changed rules on its main stock exchange to prevent a lot of selling, investors around the globe heard alarm bells. Was this China’s way of saying it was really in deep trouble?
But… Though China still looks shaky, data in recent weeks shows a rebound in consumer sentiment and a stabilizing in many of its main economic sectors. It might not be a 7% growth, but fears of a recession look overblown.
One big ‘fear factor’ remains
The macro picture looks decent, even optimistic to some — the U.S. economy is in decent shape and many parts of the world are steadying.
But one more “fear factor” looms: Corporate earnings. American companies are struggling to grow like they did in years prior. The economy may be growing, but it’s growing in low-gear. That may not be enough to drive profits higher for companies or investors.