Jeff’s Weekly Stock Market Commentary: Lack of Growth
As I write this market commentary, the S&P 500 is currently DOWN 2.55%; the NASDAQ is DOWN 3.10% and the RUSSELL 2000 index is DOWN 3.12%.
Compare that to some of my favorite positions in this environment:
20-year US Treasury Bond ETF (Symbol TLT) UP 1.74%
30-year US Treasury Bond ETF (Symbol EDV) UP 2.37%
Here’s the chart so far today, September 28, 2015:
And here is the same chart over the last 3 months:
Over the last 3 months symbol EDV is UP 10.67% and TLT is UP 7.32% whereas the RUSSELL 2000 index is down -15.35%
Granted, bonds had a very difficult second quarter this year and year-to-date bonds are still down for the year. The real question is how should we positioned going forward?
Here are a few more statistics that might help us figure that out:
The IMF just cut it’s global growth forecast saying “A forecast of 3.3% global growth this year is no longer realistic.”
Analysts (the ones that were saying that the S&P 500 would be up 8% this year) are now cutting the Q3 earnings projections (lowering their forecasts).
Japan’s Nikkei is drown -7.8% in the last month.
The Indonesian stock market is down -25% since April.
German stock market down -22% since April.
IBB (biotech index) is down 22% since July 16th.
The S&P 500 is down -8.1% in the last 3 months.
The Russell 2000 is down -12.5% in the last 3 months.
The NASDAQ is down -8.3% in the last 3 months.
Healthcare (which had been the best performing sector of the year) is not down -12.1% in the last 3 months.
Basic Materials is down -18.9% in the last 3 months.
Here’s the main point: Stock markets around the world are fighting the same problem – LACK OF GROWTH. And the Central Bankers worldwide have yet to find an effective solution.
Japan has been lowering their interest rates and debasing their currency for 30 years and they still can’t get growth or inflation. Why then should we expect what hasn’t worked in Japan to suddenly work in China or Germany or Canada or the USA?
So getting back to our main question, how should we be positioned going forward?
I believe that US Treasury Bonds will continue to out-perform stocks as long as the slow or no-growth situation continues. And it is likely to continue for several more months.
Therefore, I expect to have large positions in US Treasury Bonds (spread across multiple maturities) and cash. I don’t expect to have significant amounts exposed to stocks but may have smaller positions as trades to capture some alpha on both the long and short side as opportunities present themselves.
There are two situations that would cause me to re-assess this viewpoint.
First, if the Federal Reserve implements a new round of quantitative easing then it is likely that the stock market could resume an uptrend and even surpass its previous highs. (It is also possible, though, that the fact that our economy needs another round of stimulus combined with the fact that the last 3 rounds didn’t accomplish much could cause the stock market to lose confidence in the Fed and keep going down.)
Secondly, if Congress is able to pass legislation that reduces taxes and/or regulations on businesses.
Until then, we should continue to see gains on US Treasury bonds as it becomes more and more apparent any interest rate increase is months away.
For Common Sense Advisors, I’m Jeff Voudrie. Have a wonderful and blessed week!
The recent Fed decision to not raise interest rates has resulted in Jeff changing his clients exposure to stocks and bonds.
If you would like to have a 30 minute consultation about your allocation and get his feedback, you can go here and schedule your FREE 30 minute consultation now.