Dollars and Sense: Here comes the Santa Claus rally

Remarkable markets. Last week was a remarkable week on Wall Street. To see just how remarkable, let’s go back a couple of weeks to Dec. 5, when the Dow set a record high just short of 18,000. Then it dropped steadily, nearly 1,000 points, until this week. Now it’s recovered almost all of that loss. Wednesday it rose nearly 300 points, the biggest daily gain of the year, until Thursday. The Dow rose more than 400 points, beating Wednesday’s mark as the biggest daily gain of the year. Friday the markets rose again, though by a much smaller amount.

All about oil? Last week we spent a little extra time talking about oil because it was having such a significant impact on the markets and the economy. Are these big moves still all about oil? Oil prices, and specifically what we pay for gas at the pump, are playing a role, but a statement from Federal Reserve Chair Janet Yellen on Wednesday that was uniformly upbeat is responsible for last week’s moves. Yellen said inflation will remain low, and the Fed is in no hurry to raise interest rates. She also said the Fed projected further strengthening of the economy, with gross domestic product growth at around 2.3 to 2.4 percent, slightly higher than previous projections. Low inflation and continued growth in the economy were the key factors in the Fed’s decision. That’s what caused the spike late in the week. Yellen didn’t spend much time on oil prices, but they’re helping keep inflation down and contributing to that rise in GDP she talked about.

Not all good news. Though this week’s news was mostly good, at least for the U.S. economy and our markets, there was still considerable turmoil around the world. The Russian ruble has been in free fall. Once again, falling oil prices are the cause. And I should say that not a lot of people are weeping over that turn of events, since the person hurt the most by the ruble’s decline has been Russian President Vladimir Putin. It’s also possible that continued declines in oil prices and the ruble will put financial pressure on Putin to curtail or cease military adventures in Ukraine. But there may be a fine line between a tame Russian bear and a cornered and desperate one. For now, oil prices seem to have stabilized at around $55 a barrel, and the ruble seems to have stabilized at about 60 to the U.S. dollar. But I’ll be watching these two numbers in the coming weeks.

The week ahead. Christmas will shut down the markets for a day and a half, and I expect volume to be light the other days. It’s also a fairly light week for government reports, but we do get a couple worth paying attention to, despite the holiday. We’ll get a durable goods report today, and a revised GDP estimate on Tuesday. Neither of these are big market-movers, but if they both bring good news, they could keep this Santa Claus rally fueled with holiday cheer.

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