The chart shows the US stock market (Dow Jones index) for last year and the first quarter of this year. As can be seen from the chart, last year started on a positive note. The market rose until late February when it almost reached the 11,000 level. But interest rates were rising, and investors decided to take profits. There was a sharp fall during the month of March and the Dow bottomed out at just over 10,000. At that point investors started buying again – strong economic numbers and global liquidity (central banks printing money) offered support to the market. Over the summer the Dow was flat, trading in a range from 10,300 to 10,700. The market was unable to break out of this range, even though company profits were increasing. What was the reason? It was almost entirely due to the price of oil, which had climbed dramatically from 42 dollars a barrel at the start of the year to 68 dollars in August. This price rise was caused by the hurricane season in the Gulf of Mexico and increasing tension in the Middle East.

In mid-October, the markets started to rally strongly and went from 10,200 to 10,900 over just four weeks. This sudden jump was as a result of comments made by a member of the Federal Reserve, who indicated that interest rates would soon stop rising. This is positive for business as the cost of borrowing also stops going up. From November to January the market remained more or less unchanged, failing to break through the February highs.

Over the last few months, the market has advanced again. The economic backdrop remains healthy: company profits are good, consumer spending is up, and interest rates are close to reaching a peak. The only dark cloud is the price of oil, which has risen back to the $70 level and looks certain to go up further. The next hurricane season is approaching and production worldwide cannot be significantly expanded.