What would make investors shake the negative investment sentiment which seems to be in control of the stock and bond market? A douse of “reality”. Actual corporate earnings reports are the “reality” the stock market needs to fend off fears of what might happen or not. Over 50% of the S&P 500 will announce quarterly earnings during the next 10 days. That’s a lot of reality. I suspect we will be surprised how many companies beat their earnings estimates because of lower operating costs resulting from a plunge in energy costs.
Daily Archives: January 26, 2016
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. These trends put more money in the pockets of Americans in 2016.
THE FED AND ITS POLICIES: This factor is rated B (favorable). The U.S. economy can handle higher rates as long as the pace of future interest rate increases is slow. Fed Chair Janet Yellen made clear in her press conference after the December meeting that the path higher would be “gradual”.
The Fed’s plan to gradually raise rates in the coming years won’t derail the economy and brings some certainty to the market, says Morningstar’s Bob Johnson. The market consensus on the 2016 pace of increase is somewhere around two to possibly three rate increase of .25% each.
BUSINESS PROFITABILITY: This factor’s grade is a C (average). During the next 10 days, investors will turn their attention to the fourth-quarter earnings season.
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 7 due to Saudi Arabia severing diplomatic ties with Iran and the potential for social/political upheaval in China. These risks deserve our ongoing attention.
My Choice
The purpose of the section is to share valuable information about positive actions or information to empower ourselves. Advisors and/or staff of Valley National select a topic they would like to share with you which you can choose to use.
This week, Tim Roof CFP®, one of Valley National’s financial advisors and longtime employees, has chosen to share important information about: “One stop guide to key facts and important tax dates to remember for 2016”
Sometimes it is hard to find “up to date” financial planning and tax information on the Internet–when quarterly taxes are due, 401(k) contribution limits, and so forth. But in the interest of saving you a few clicks, we have found important tax facts and dates in a single spot – CLICK HERE.
The Numbers
Last week, U.S. Stocks and Foreign Stocks both increased. Bonds decreased. During the last 12 months, BONDS outperformed STOCKS.
|
Returns through 1-23-2016 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
-.1 |
.9 |
.2 |
1.8 |
3.4 |
4.5 |
|
US Stocks-Standard & Poor’s 500 |
1.4 |
-6.6 |
-5.6 |
10.8 |
10.6 |
6.4 |
|
Foreign Stocks- MS EAFE Developed Countries |
.2 |
-8.6 |
-9.6 |
.8 |
1.4 |
1.8 |
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 Robert D. Touzeau CLU, ChSNC, LUTCF will discuss: “Financial Planning for Special Needs Families”
Laurie and Robert will take your calls on these topics and other inquiries this week. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. This show will be broadcast at the regular time. 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
“If the wind will not serve, take to the oars.”
– Latin Proverb
The Markets This Week
Stocks finished more than 1% higher last week, but not before investors were treated to the market’s version of the Coney Island Cyclone, a ride equal parts thrilling and frightening. The scary nadir was reached Wednesday, when the two major broad indexes fell three-quarters of the way to a bear market, down about 15% from last May’s all- time highs.
On the week, the market dropped 4% before turning and soaring higher, finishing up better than 5% from the low. The violent moves were driven by similarly volatile oil prices, which hit a low Wednesday but finished up 9% on the week to $32.16 per barrel, up 21% from lows. Traders scrambled to cover their short positions.
Last week, the Dow Jones Industrial Average gained 105 points or 0.7%, to 16,093.51, and the Standard & Poor’s 500 index rose 27 to 1906.90. The Nasdaq picked up 2.3%, to 4591.18
Energy stocks jumped 2%. While the oil market ruled the day, equities also were boosted by comments about further stimulative central bank measures from officials in Europe and Japan last week. In the background, fears lurk about global growth, despite a decent 6.8% fourth quarter China GDP growth number released last week. Though a bit less than expected, it was much better than investors’ worst fears. Nevertheless, it was the lowest in a quarter century.
“There was a coiled spring of short positions” that were released in the upsurge, says Michael Purves, chief global strategist at Weeden. The oil bounce was particularly interesting as it occurred against a challenging backdrop of a rising dollar and news of rising U.S. crude supplies.
The oil rally is interesting from a historical view, as well. Two of the last three times crude prices closed up at least 9% on the week happened within the same week as a bottom in the stock market, in March 2009, and August 2015, according to WSJ Market Data Group.
Nevertheless, Adam Sarhan, CEO of Sarhan Capital, views last week’s recovery as just a relief rally from much oversold levels. Indeed, on Thursday, according to Bespoke Investment Group, the S&P 500 index had closed two standard deviations below its 50-day moving average for 11 straight days. Such a streak is rare, and the last one that long was October 2008, and before that September 2001.
Sarhan expects the broad stock indexes to enter a bear market and join many subgroups of stocks—commodity, small caps, banks, among others—already there. The market put in a “near term low” Wednesday, he says, but not “the low.”
Big violent rallies are par for the course in bear markets, not in bull markets, he adds. The market has not had a good time of it going right back to when the Federal Reserve ended its quantitative easing program in October 2014. The biggest driver of the bull was its easy monetary policy.
No moves are expected, but investors will be paying close attention this Tuesday and Wednesday, when the Federal Open Market Committee meets.
(Source: Barrons Online)