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Swiss shocker, crude price and more QE: How to play the market next week

Nicole Goodkind
Nicole Goodkind

 It’s been a volatile week for markets, stocks bounced back on Friday after five straight days of losses. Data reporting rising factory output and high consumer sentiment brought stocks back into the green, particularly in the energy sector. On Thursday a shocking announcement from the Swiss National Bank sent markets into a tizzy. The central bank rid itself of its euro exchange cap and lowered interest rates with almost no warning, creating what was described as a “bombshell,” for the economy. Continuously unstable oil prices and depressing bank earnings also led to the market's disappointing stretch this week.

But what will happen next week? Yahoo Finance’s Jeff Macke, Rick Newman, senior columnist Michael Santoli and editor-in-chief Aaron Task got together to discuss.

Swiss shock and ECB look-ahead

“While it looks like new highs that suddenly ended, it’s actually been a six-month period of sliding sideways,” says Santoli. He believes that bond-like stocks have propped up the markets. “This could either be a healthy consolidation -- we’re going to find a new set of buyers at these levels -- or it’s showing a narrowing market that’s going to be more vulnerable.”

Newman points to the shock move by the Swiss National Bank to prove that 2015 will be driven by things we can't anticipate. “That euro has fallen straight out of bed with this change,” Macke says. “And in a normal world currencies move glacially.”

The bigger problem, Newman says, is that we are nowhere near a situation where markets are driving markets. “It’s still policy makers driving markets and that’s going to continue. That’s volatile by definition,” he says.

On top of the Swiss shock, the European Central Bank meets next week and is expected to announce new stimulus measures. Says Santoli: “The ECB is in the habit of merely rising barely to meet market expectations at this point. And really the question is what effective use is QE going to be when you have long-term bond yields already skirting zero.”

Oil: How low can it go?

Everybody is making forecasts about oil as if the policy will remain the same through 2015, Newman says. “The policy that matters here is how much oil will Saudi Arabia produce?”

“They’re not going to be the first to cut production,” says Santoli. “That’s the key. They’re going to wait for the weaker players to get out there.” Producers need revenue, and that’s where we’ll see a change.

Macke points out that although there’s been a 60% decline in the price of oil since June, there hasn’t been a large drop in supply or in national demand. “We’re outside of the world of economics,” he says. “Crude is being driven by forces that aren’t necessarily part of a policy…so the real nightmare scenario is if the Saudis go ahead and decide to curtail production and crude just ignores that.”

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