Dollars and Sense: The market bulls continue their stampede

Record highs. The stock market bulls continue to stampede. All three of the major indexes rose this week. The Dow even set a new record high on Friday. A couple of weeks ago I said the markets were watching the Three Es: Europe, earnings, and Ebola. Are those still the key indicators? Yes, although other factors have entered the equation. Rightly or wrongly, Ebola fears have eased. The markets, at least, think Ebola is contained. Concerns about Europe remain, but they haven’t gotten any worse. We’ve actually seen some reports from Spain, for example, indicating the situation there is improving slightly. Unemployment, which had been more than 25 percent, is beginning to drop, and the Spanish economy is now expanding. And earnings reports here in the United States have been good. So far this earnings season, more than seven out of 10 companies, or 71.4 percent, in the S&P 500 stock index have topped third-quarter earnings forecasts, better than the long-term average of 63 percent.

Market anomaly. We did see a bit of an anomaly on Thursday. While the S&P and the NASDAQ were flat to slightly down for most of the day, the Dow rose more than 200 points at one point because of a single stock. The gain was almost entirely due to its biggest component, Visa, which jumped more than 9 percent after reporting earnings that beat expectations. I mention this to make the point that if you really want to know what’s going on in the markets and the economy, it’s best to look beyond the top-line score, though too often these major-market indicators are the only ones we mention.

Sinking oil prices. So what are those other factors? For the past few weeks, analysts are keeping an eye on oil prices. West Texas Intermediate has now fallen to $80 a barrel, a price considered a key level because a drop below this prompts computer-generated selling in assets tied to oil prices. I know most people are glad to see those declining oil prices because they see prices dropping at the gas pump, too. But those sinking oil prices are not all good news. The United States is producing much more oil and natural gas, contributing to the drop in prices. Supply goes up and price goes down. That’s good for consumers. The increased production also means the United States is approaching energy independence. That’s good too. But all that exploration and production could dry up if prices drop too much. And while the increased supply is causing some of the price drop, we also have to acknowledge weakening global growth is contributing to the decline.

Humming along. If growth is slowing abroad, it’s not here. This week we got a report that said the economy grew 3.5 percent in the third quarter, after a 4.6 percent jump in the second quarter. Of course, the first quarter was so bad that growth for the year still likely will be in the 3 percent range.

The Fed’s non-event. Fed Chair Janet Yellin announced last week the Quantitative Easing program is now officially coming to an end. No more Fed bond buying. Most economists welcomed the news. Investors had been counting on this for months, so it didn’t move the markets much, but it did mark the end of a short, strange era of central government attempts to manipulate the economy that likely will be studied and argued about for years to come.

The week ahead. It won’t be a heavy week for government reports, but we will get October’s unemployment report on Friday. That report often moves the markets. I’m also going to continue to pay attention to the global markets. While the United States is ending its quantitative easing program, Japan’s government announced it would commence a huge stimulus program to try to shock that economy out of its doldrums. That announcement boosted the global markets on Friday, but it will be interesting to see if, after a weekend to reflect on things, traders view the stimulus as good news or a sign of desperation.