October is, on average, a very good month for the U.S. stock market. But it is also a volatile month: Stock market veterans will recall the S&P 500 Index fell 20.5% on Monday 10/19/87 (28 years ago today), the largest single-day drop, in percent, in the history of the stock index. Keep in mind, in spite of tumbling 20.5% on the single trading day of Monday 10/19/87, the S&P 500 gained +5.3% for the entire 1987 calendar year.
Daily Archives: October 21, 2015
The “Heat Map”
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 – early reports are favorable. A large number of companies will report earnings in the coming week.
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. These risks deserve our ongoing attention.
The Numbers
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 10-16-2015 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.4 |
1.6 |
1.8 |
1.8 |
3.2 |
4.7 |
|
US Stocks-Standard & Poor’s 500 |
.9 |
.4 |
11.5 |
14.2 |
14.0 |
7.8 |
|
Foreign Stocks- MS EAFE Developed Countries |
.3 |
1.6 |
5.4 |
7.4 |
4.5 |
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.
“Your Financial Choices”
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 host Attorney Judith Harris, of Norris, McLaughlin & Marcus, will discuss: “Estate Planning Awareness Week”
Laurie and Judy will take your calls on these topics and other inquiries this week. This 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 Markets This Week
Stocks finished the week on a high note, up nearly 1%, helped by good quarterly results from some big industrials and more signs that the Federal Reserve mightn’t hike interest rates come December. Encouraging credit-market data from China also gave investors hope that the country’s growth might reignite.
Last week, the Dow rose 0.8%, or 132 points, to 17,215.97. The Standard & Poor’s 500 index increased 18, to 2033.11. The Nasdaq Composite moved up 1.2% last week to 4886.69.
The stock market has recovered much of the ground lost in the summer. Sentiment indicators, such as breadth, have improved significantly. That bodes well for the near term, but more volatility wouldn’t be surprising, says Liz Ann Sonders, chief investment strategist at Charles Schwab. She says a December rate hike is a toss-up.
The rally has been short and bracing, but it only returns the market to the narrow range that it has trudged in the last 12 months, notes Ralph Fogel, head of investments at Fogel Neale. The market sees the low U.S. economic growth and still-dropping unemployment figures as the “Goldilocks” scenario, he says. “The Fed won’t move in December…and maybe for a while longer,” he adds.
The U.S. bond market, which rallied strongly last week, is a tell, indicating there’s been a “further pushout” in market’s expectations for a Fed tightening, says Steven Einhorn, vice chairman of Omega Advisors.
The market recovered from midweek lows, caused by a surprisingly poor outlook from Wal-Mart Stores (ticker: WMT). The giant retailer, the biggest private employer in the U.S., said Wednesday that its earnings in 2016 would drop significantly, given its pledge to raise U.S. workers’ wages and invest in online sales.
Nevertheless, a continuation of mixed-to-sluggish U.S. data releases increasingly has investors believing the Fed won’t act this year. The bank’s beige-book survey, released Wednesday, indicated “continued modest expansion.”
Most of the market’s rally came Thursday, when many hedge funds began to cover short positions, says Michael O’Rourke, chief market strategist at JonesTrading.
Given that investors have returned to embracing the no-rate-hike idea, the Fed’s data and comments “spooked the shorts,” he adds.
Some surprisingly good news Friday from industrial bellwethers, such as General Electric (GE) and Honeywell International (HON), boosted stock market confidence, too. Both beat analyst third-quarter profit expectations.
Chinese September lending data were also stronger than expected, bolstering the idea that the government’s efforts to ramp up the country’s growth are taking hold. It shows there is credit-market support for Chinese expansion, and ultimately it should help the U.S., Einhorn adds.
(Source: Barrons Online)