Both the bond and stock markets continue to act irrationally. This can occur for short time periods and frustrates many investors. Markets can either advance or decline during these times. Consider this analysis provided by Barron’s Online pertaining to last week:
“Part of the newfound bullishness derived from Thursday’s release of dovish minutes from the latest Federal Open Market Committee meeting, which investors interpreted as meaning that the likelihood of a December interest-rate hike is receding. It’s hard to believe that only two weeks ago, the market was unnerved by the same thinking.”
FOR THE TIME BEING, WE RECOMMEND YOU KEEP AN EYE ON THE “HEAT MAP” (BELOW) WHICH SERVES AS AN EXCELLENT TOOL TO KEEP THINGS IN PERSPECTIVE OVER A LONGER PERIOD.
Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: This grade equals B+ (very favorable). Gasoline prices continue to drop. Imports have become cheaper due to the strength of the U.S. dollar. Low interest rates will help real estate, an important component for the consumers’ wealth effect. These trends put more money in the pockets of Americans coming into the all-important Holiday shopping season.
THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. The FED kept interest rates unchanged last week. The next big milestone is Fed meeting will occur Oct 27-28.
BUSINESS PROFITABILITY: This factor’s grade is a C (average). Earnings reporting season is upon us – more clarity on profitability will be available soon.
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5 (decreased from 6) due to continued signs of a slowdown in China. These risks deserve our ongoing attention.
Last week, Bonds, U.S. Stocks and Foreign Stocks both increased. Bonds declined. During the last 12 months, STOCKS outperformed BONDS (a change).
Returns through 10-9-2015
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
-.3
1.2
2.0
1.8
3.0
4.6
US Stocks-Standard & Poor’s 500
3.3
-.5
6.7
14.2
14.0
7.6
Foreign Stocks- MS EAFE Developed Countries
5.4
1.3
.9
7.9
4.7
3.9
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week, Laurie and guest hosts Bernie Story, CEO and President of the Lehigh Valley Community Foundation and Nancy Knoebel, CEO of Easter Seals of Eastern Pennsylvania will discuss: “Financial Giving and Receiving in the Lehigh Valley”
Laurie, Bernie, and Nancy will take your calls on these topics and other inquiries this week. The show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
The “risk on” trade is back. Stocks finished a torrid week with major indexes rising more than 3%. In a sign of improved investor confidence, riskier assets outperformed. Shares of small-caps and the most beaten-down companies rallied, as did emerging-market equities, up nearly 7%.
There’s enough global economic weakness for the Fed to delay an interest-rate hike, but investors came round to the conclusion that things are not quite as bad as they thought back in August, says Jason Pride, director of investment strategy at Glenmede Investment and Wealth Management. Last week the Dow rose 3.7%, or 612 points, to 17,084.49. The Standard & Poor’s 500 index advanced 64, to 2014.89. The Nasdaq rose 2.6% on the week, to 4830.47. Stocks have risen eight out of the past nine trading sessions.
The expectation of no hike by the Federal Reserve Bank has weakened the dollar. The greenback is down from early August, which has bailed out some of the hardest-hit stock groups. Rising commodity prices, particularly oil, have also paced the market’s rebound and braced resource stocks. Crude rose 9% last week, its largest gain since August, and closed near $50 per barrel.
It’s no coincidence that the three best stock sectors since Sept. 18 have been energy, up 9%, and industrials and materials, both up 5%, the groups most pressured by higher commodity prices and a stronger dollar.
“The realization that a hike in December is a question mark, that the dollar has stopped going up, and that commodities have stopped going down” renewed interest in riskier assets, says Brian Belski, chief investment officer at BMO Financial Group. Many big investors were underexposed to resources, industrials, and financials, and those sectors took in some cash, he says.
