What is the impact of the terrorist attacks in Paris? I do not know for sure. So many variables exist, the outcome is unknowable at this time.
But, we believe the implications will be vast, far reaching, and BIG.
FOR EXAMPLE, we recall attending an investment conference last decade during which a futurist (one who forecasts what the future holds based upon his or her insights) predicted a number of developments – one of which was the demise of the European Union as a result of immigration and racial tensions. I think we can see more clearly how that is a possibility.
Here in the United States the issue of States’ Rights (one of the causes of the Civil War) will come front and center in the debate over the Syrian refugees’ settlement within America. The topic of Syrian refugees will enter into the Presidential debates in the coming months.
And, France may invoke Article 5 of NATO (North Atlantic Treaty Organization) which, in effect, is a declaration of war by NATO on ISIL. Is it possible? YES. It was invoked after America was attacked on 9-11. Click here for a comprehensive description of the issues surrounding Article 5.
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 next big milestone is the Fed (Open Market Committee) meeting which will occur December 16 – 17.
BUSINESS PROFITABILITY: This factor’s grade is a C (average).
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 6- an increase to reflect the uncertainty arising from the response to the ISIS attacks in France. These risks deserve our ongoing attention.
Last week, Bonds increased. US Stocks and Foreign Stocks declined. During the last 12 months, BONDS outperformed STOCKS.
Returns through 11-13-2015
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.2
.5
1.4
1.5
3.0
4.7
US Stocks-Standard & Poor’s 500
-3.6
.1
1.3
16.2
13.4
7.3
Foreign Stocks- MS EAFE Developed Countries
-1.7
-1.2
-3.3
7.4
3.9
3.6
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 Steve Stelzman from The Mortgage Company will discuss: “Qualifying for a mortgage and restoring your credit.”
Laurie and Steve 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– 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.
Stocks broke a six-week winning streak, slumping nearly 4%. The rout last week came amid falling commodity prices and disappointing third-quarter earnings reports from key retailers.
Lurking in the background is market anxiety about the Federal Reserve’s expected interest-rate increase next month. After the release of more economic data showing weakness, investors are trapped between poor global growth and the expected Fed hike.
The Dow Jones Industrial Average fell 3.7% or 665 points last week to 17,245.24, while the Standard & Poor’s 500 index lost 76 to 2023.04. The Nasdaq Composite fell 4.3% last week to 4927.88. Oil fell 8% to $40.74 per barrel.
On Dec. 16, the Federal Open Market Committee concludes its next meeting, which might see the first rate hike of the benchmark federal-funds rate, however small, in about a decade. As a report from Wellington Shields noted: The last time the Fed raised that rate, the iPhone didn’t exist.
Data Monday showed China imports fell 19% in October, and commodities were whacked last week. That’s interpreted as a lack of demand, so “the global growth scare has returned,” says David Donabedian, chief investment officer at Atlantic Trust Private Wealth Management. “This time, however, the market senses that the Fed won’t back down on the expected hike.”
The week’s drop began in earnest Thursday after Nordstrom (ticker: JWN) reported disappointing third-quarter earnings and lowered guidance. That followed similarly bad news Wednesday from Macy’s (M) and others.
The “horrible” retail figures took some wind out of a six-week rally that had made investors complacent, says Aaron Clark, a portfolio manager with GW&K Investment Management. Many assumed the October stock gains were a forerunner of “an end-of-year melt-up,” he adds, in what is traditionally a good season for stocks. This week, however, better earnings reports from Home Depot (HD) and Lowe’s (LOW) could reverse the negative sentiment, he says. While many are expecting an end-of-year market flourish, “the Santa rally actually happened in October,” argues Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.
There are lingering concerns about the pace of corporate earnings growth, the Fed rate liftoff, and mixed expectations for holiday retail sales, he says. The analysts’ corporate profit-growth estimate of 9% next year for the S&P 500 is probably too high, and as estimates reset lower the market is likely to stay in the narrow range it’s inhabited most of the year. Holiday sales could be the swing factor, he says.
Friday saw the release of contradictory economic news. The University of Michigan preliminary November sentiment index rose above expectations to 93.1 from 90 in October. The Labor Department said October producer prices decreased 0.4%, weaker than an anticipated rise of 0.2%. The Commerce Department said retail sales rose 0.1% last month, also softer than expected.
