The loud and furious market plunge that kicked off the year has given way to a quiet and sustained rally, the apparent product of aggressive central banks around the world and dwindling fears of a U.S. recession.
U.S. stocks rose by just under 1 percent Thursday, which was enough to erase the last of the losses the Dow Jones industrial average suffered in the turbulent first six weeks of 2016 – a white-knuckled ride that wiped out trillions of dollars globally in stock values. Those early weeks included several days when the market fell by more than a percentage point, bottoming out in February, when the Dow was down more than 10 percent for the year.
Oil prices reversed the last of their year’s losses as well on Thursday, closing above $41 a barrel for the first time since December.
Those gains could be temporary, but they reflect hopeful trends of the past month. Market volatility has fallen from its January and February heights. U.S. job creation has beat expectations, and the Commerce Department has revised its estimates of recent economic growth upward. Recent manufacturing surveys, including one released Thursday by the Federal Reserve Bank of Philadelphia, suggest improvement in a sector that has been hamstrung by weak global demand and a strong dollar.
The dollar, meanwhile, has weakened considerably in the past two days, following Wednesday’s decision by the Federal Reserve to hold interest rates steady this month. The Fed’s announcement was widely viewed as a sign that rates will rise perhaps less than expected this year, which appears to have sent investors back to buying stocks and other higher-risk assets.
Other central banks around the world, including in Japan and Europe, have either increased monetary stimulus or declined to raise rates in recent weeks. And in China, the source of some global growth fears as the year opened, officials have taken new steps to avoid a dramatic slowdown.
Economists expect more good news Friday when new consumer sentiment figures are released by the University of Michigan. The consensus forecast is for a slight pickup from sentiment in February – with a potentially larger increase next month.
“With stock prices having recovered” from the start of the year, Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a research note Thursday, “we now expect April sentiment to rise quite sharply.”
Not all the economic indicators are flashing green, however. The Labor Department reported Thursday that job openings increased in January but that fewer workers were willing to quit their jobs to seek or take new ones – a mixed signal that suggests the labor market is still not fully healed.
Deutsche Bank economists also warned that it is “too soon to tell” if the manufacturing sector has passed entirely through its recent rough patch, or whether its struggles will increase in the months to come.
(c) 2016, The Washington Post · Jim Tankersley