Off to the Races: Dow Gains 300 Points, S&P 500 Jumps

Just think: Two days ago, we were worried about a market meltdown. Now it’s time to consider a melt-up.

Getty Images

The S&P 500 has gained 1.6% to 2,058.03 at 11:46 a.m. today, while the Dow Jones industrial Average has risen 283.50 points, or 1.6%, to 17,868.02 with every component in positive territory. The Nasdaq Composite has advanced 1.7% to 4,729.42 and the small-company Russell 2000 is up 1.5% at 1,193.26.

Despite the presence of solid economic data–US jobless claims fell to 294,000, less than predicted but still below 300,000–let’s chalk the rally up to better sentiment. Sure, the eurozone is a wreck, but when even the Federal Reserve thinks the European Central Bank should do something, you have to figure it will finally act.

Of course the U.S. will probably be wrestling with deflation soon enough thanks to the drop in oil, says Capital Economics’ Paul Ashworth. The “risk of a damaging debt-deflation spiral developing,” however, remains low, he says:

The decline in oil prices is actually a big positive for a net importer like the US, which should provide a temporary boost to real GDP growth. In many ways this is a “good” deflation. Admittedly, there is a risk that good deflation could develop into a bad debt-deflation spiral if falling prices become ingrained in inflation expectations. As the similar-sized slump in oil prices in 2008 didn’t trigger a deflationary spiral, however, when the economy and financial markets were in turmoil, it is hard to see why this renewed slump in oil prices, which is occurring against a backdrop of a rapidly improving real US economy, will lead to a worse outcome.

Top Information Technology Stocks To Watch For 2015

Still, Evercore ISI’s Dennis DeBusschere thinks it will be a choppy year for stocks:

U.S. equity markets have enjoyed a long period of solid returns, low volatility and multiple expansion as the Fed’s “extraordinary” policy interventions kept interest rates low, pushed investors out on the risk curve and allowed the nascent economic recovery time to take hold. Now, with labor markets strong, wage growth and investment picking up and equity multiples back to normal levels, the Fed is preparing to normalize policy even as much of the rest of the world struggles to find (Europe) or keep (EM) their footing. We expect 2015 to be a year of market consolidation with low single digit returns, increased volatility with market leadership coming from defensive factors, and non-commodity cyclical stocks.

Today though? It’s buy everything.