US stocks are poised for more upward momentum even as uncertainty over oil prices and Greek debt negotiations keeps the market on tenterhooks, analysts say.
Strong fourth-quarter US company earnings and signs of an overall improving economy, alongside what appears to be the start of a bottoming in crude oil prices, have given equities support.
After starting 2015 with its sharpest monthly drop in a year and a spike in volatility, the benchmark S&P 500 .SPX hit an intraday record on Friday while the Dow Jones Industrial Average .DJI reached its highest point so far this year.
As “stocks have found a footing, people aren’t as afraid of the potential negative” stemming from recent instability in oil prices and Greece, said Wayne Kaufman, chief market analyst at Phoenix Financial Services in New York.
“That’s allowed stocks to start breaking out of the channel that they’ve been stuck in since the beginning of the year,” he said.
Volatility seems to abating. The CBOE Market Volatility Index .VIX, Wall Street’s fear gauge, oscillated between 15 and 24 for most of 2015, rising over its historical mean of 20 during 15 of the year’s 30 trading days so far.
Its 20-day moving average hit its highest since mid-2012 earlier this month.
But on Friday, the VIX fell to its lowest level this year, briefly trading below 15. That, together with a rising market, could be a promising sign.
“Market breadth, while it hasn’t been wonderful, has been positive,” said Phoenix Financial’s Kaufman. The S&P 500 breaking above its 2,064 level earlier this month was another bullish technical sign, he said.
CONSUMERS, GREECE COULD ADD SUPPORT
With the bulk of US earnings season already in the bag, and positive on the whole, analysts are looking ahead to next week when consumer giant Wal-Mart Stores Inc (WMT.N) is scheduled to report fourth-quarter results.
“So far we’re pretty pleased with the reports,” said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco.
Of the 391 S&P 500 companies that have reported earnings, about 71.1 percent have topped profit expectations, above the historical average, Thomson Reuters data show.
Wal-Mart is likely to benefit from lower gas prices, which could translate into more consumer spending. At the same time, its global reach could leave it exposed to the negative impact of a stronger US dollar.
As stocks hit new highs, market participants will be paying close attention to developments in Greece – which, alongside oil prices, have been at the root of the volatility seen in the market this year.
Greece’s new leftist government and euro zone finance ministers failed to agree this week on the next step for the country’s bailout, leaving negotiations on the table for next week as they inch closer to a February 28 deadline. The Greek government promised to do “whatever we can” to secure a deal with international creditors.
While US exposure to Greek debt is “pretty minor,” uncertainty over the situation and the impact on broader markets adds to volatility, according to Charles Lieberman, chief investment officer of Advisors Capital Management LLC in New Jersey.
“It’s more in the nature of psychology than real substance,” he said.