Nine out of 10 FED-watching experts believe the FED will raise rates Wednesday. This event has been heavily anticipated for quite some time. Experience tells us, when an important event (like the FED initiating a program of interest increases) can be foreseen for a long period before it occurs, the markets will have already factored the event into their models and portfolios by the time the event occurs. The preamble to the event is frequently more volatile than the actual event itself. At times like this, it is important to keep a long-term view of your portfolio and keep an eye on the indicators listed below in the “Heat Map”.
Daily Archives: December 14, 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 in 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 5. This is reduced from 6. These risks deserve our ongoing attention.
The Numbers
Last week, Bonds increased but U.S. Stocks and Foreign Stocks declined. During the last 12 months, BONDS outperformed STOCKS.
|
Returns through 12-11-2015 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.5 |
1.2 |
1.4 |
1.6 |
3.5 |
4.7 |
|
US Stocks-Standard & Poor’s 500 |
-3.7 |
-.3 |
1.0 |
14.5 |
12.5 |
7.0 |
|
Foreign Stocks- MS EAFE Developed Countries |
-2.4 |
-2.4 |
-3.0 |
5.0 |
3.7 |
3.1 |
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 will discuss: “Last minute tax strategies and updates.”
Laurie 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.
Motivational Quote of the Week
“Few things can help an individual more than to place responsibility on him, and to let him know that you trust him.”
– Booker T. Washington
The Markets This Week
Last week oil prices plunged, the high-yield bond market unraveled, and stocks registered their worst performance in four months. All of it felt like a prelude to Wednesday, when the Federal Reserve is almost certainly going to raise interest rates for the first time in nine years.
“The withdrawal of Fed policy creates these hissy fits,” said Peter Boockvar, the chief market analyst at The Lindsey Group. “It’s pretty clear everyone expects it to happen, and the decision comes with so much baggage.”
The Dow Jones Industrial Average fell 582 points, or 3.3%, last week to 17,265.21, while the Standard & Poor’s 500 index dropped 79 points to 2012.37. It was the S&P’s steepest drop since August, and left the index in negative territory for the year, down 2.3%. The Nasdaq Composite fell 4.1% to 4933.47.
Just one Dow stock ended the week in the black— DuPont (DD) rose 4% on news that it will merge with Dow Chemical (DOW) to create a $130 billion giant that will eventually split into three companies. The merger could result in DuPont being taken out of the Dow index.
A sharp decline in oil prices helped precipitate the slump. On Friday, the International Energy Agency forecast that supply would stay high and demand would stay low into next year. Crude futures fell $4.35, or 10.9%, on the week, to $35.62 per barrel. Oil stocks fell hard, with ExxonMobil (XOM) off nearly 6%. Smaller energy companies plunged even further, with Chesapeake Energy (CHK) dropping 9% on Friday alone.
The drop in crude also accelerated a selloff Friday in junk bonds, many of which had been issued by energy companies. Two prominent exchange-traded funds that track high-yield bonds fell 2% each.
Investors are so spooked that they are stockpiling greenbacks. In the past week, money-market funds saw $13 billion in inflows, versus $6 billion in outflows from both bonds and equities, according to a Bank of America Merrill Lynch report issued Thursday. Junk bonds saw their largest outflows in 15 weeks, at $3.8 billion.
“The cost of capital is going up for corporate America,” Boockvar said. “Investors are realizing that credit is tightening, monetary policy is tightening, earnings have been weak. It’s all coming together.”
This is the stage onto which Janet Yellen will walk next week. Despite the Fed’s foreshadowing of a rate increase in recent weeks, it still feels momentous, and much hangs in the balance.
(Source: Barrons Online)