December 22nd Weekly Market Update
With 2015 almost here, this week we pose and respond to 10 key stock market questions for 2015. Look for more on these and other topics throughout the year. We bring 2014 to a close with this Weekly Market Commentary. Look for our next edition on January 5, 2015. Happy New Year!
Does the drop in oil prices mean a sharp slowdown in growth is coming?
We don’t think so. Overall, we estimate that the $50-plus drop in the price of WTI Crude Oil since June 2014 may boost U.S. gross domestic product by roughly 0.5%. The drop in oil has many beneficiaries, including consumers (who save about $1.4 billion for each 10 cent drop in gasoline prices), airlines, and manufacturers who benefit from access to cheaper fuel. Although some overseas economies — Russia in particular — are hurt by lower oil prices, oil importers such as China and Japan benefit. Lower oil prices will slow the U.S. energy boom and capital investment in the sector but will not stop it.
Will the Federal Reserve (Fed) end the bull market?
This is unlikely. Although the likely start of interest rate hikes in late 2015 may contribute to an increase in stock market volatility, history has shown that stocks have subsequently performed well when the Fed started to hike rates in response to better growth. During the nine economic expansions over the past 50 years, the S&P 500 has performed well around the first Fed rate hike, suggesting the Fed is unlikely to derail the market next year. The first rate hike has historically come only about halfway through economic cycles and well before bull markets have ended.
For the full article: 10 Stock Market Questions for 2015