Jeff’s Weekly Market Commentary: Waiting Out The Storm
I’m Jeff and this is my Weekly Market Commentary for May 18, 2016.
I am 51 years old and for most of my life I haven’t really had any hobbies. Over the last year, though, I have discovered that I really enjoy sailing. The power of the wind is incredible and the thought that sails can be used to harness that wind and transfer the energy into forward propulsion seems almost magical.
One big difference riding in a sailboat versus a motorboat is that sailboats lean over as the sails catch the wind. This is known as ‘keeling’. Initially, it feels quite dangerous as the boat starts to roll to the side 45 degrees!
It is very unnerving for a lot of people—like my wife! She prefers keeping her feet firmly planted on terra firma. Keeling reduces the drag and helps the boat start to skate across the water. Of course the wind doesn’t always stay constant so the degree of keeling keeps changing.
Over the last several months I have said that I believe we have seen the market ‘highs’ (2133 on the S&P 500) and that we may see the recent lows (1810 on the S&P500) broken.
As we entered into 2016, the S&P500 had the worst first 6 weeks in the history of the S&P 500….EVER. It plunged 12%. Since then it has surged back up to 2064. If you listen to the Wall Street System pundits, you’d think that everything is fantastic!
Hmmm. I don’t agree. Let’s put this recent surge in the S&P 500 in context.
Jeff’s Weekly Stock Market Commentary: Looking Back
Happy New Year!
Most investors will be happy to have 2015 in the rear-view mirror. The S&P 500 eked out a 1.4% return including dividends. Excluding dividends it was down -0.73%. A total return of 1.40% for the S&P 500 is the worst annual return since 2008. Overall, that sounds rather tame, but both the stock and bond markets gyrated more in 2015 than they have since 2009.
Jeff’s Weekly Stock Market Commentary: Will The Fed Kill Our Economy?
Last week the Federal Reserve shocked the markets by emphasizing that a December rate HIKE was “squarely back in play”. As a result, the odds of a December rate hike have gone from roughly 30% before the announcement to around 60% now.
If the Federal Reserve raises interest rates in December—even by 1 basis point—I believe that it will hasten a recession in the U.S. economy. More importantly, it is possibly that even the threat of a December rate hike could be the catalyst that causes the stock market to retest the August lows.
The S&P 500 index tumbled in August of 2014, bottoming out on August 24th at 1824. As I write this, the S&P 500 index is trading at 2105. Re-testing the August lows represents a 13% drop from today’s level. Keep in mind that virtually all but one recent economic data point shows that the U.S. economy continues to slow.
So why would the Federal Reserve raise rates into a slowing economy when they have repeatedly said that any increase would be ‘data dependent’?