Markets reflect a lack of conviction
With seven months of market activity now in the books, the year-to-date results appear to be the result of a lot of “what do you think with the Fed/China/Apple/biotechs/your favorite topic here?” Having marked the second anniversary of the end of the bond bull market a couple weeks ago, and with the reality of higher rates becoming imminent, traders are keeping everything pretty close. Here’s what I mean.
We did have two of the three major US stock market indicators closing July with both weekly and monthly gains. The NASDAQ outperformed with a 2.8 percent gain for the month. The S&P 500 gained nearly 2 percent for the month. The Dow managed just a 0.40 percent gain for July but remained off 0.74 percent for all of 2015. This year is said to have the narrowest trading range for the markets – ever…
Oil prices fell last Friday after signs that top producers in the Middle East were continuing to pump at record levels in order to fight for market share, despite the current global gut of crude and that US energy firms put five more oil rigs to work last week. This after having put 21 rigs into service the prior week, the most in over a year. Stockpiles are still at the highest levels in 80 years, and this week’s drop comes amid concerns that there’s too much oil on the market.
While certainly having an adverse effect on energy and related shares, what’s bad for oil prices and the oil producers is often good news for the rest of the economy. Transportation of all sorts is essential for the global economy. Therefore, lower oil prices can act as a stimulant for large parts of the global marketplace.
And then, there was gold…
Gold prices fell 6.5 percent in July, marking the biggest monthly decline in more than two years on assumptions the Federal Reserve will soon raise rates. I’m of the opinion that its slide is a long way from being done…
A couple conclusions from this are, as we’ve known forever, neither the smartest individual nor most powerful computers on the planet can consistently time the short-term shifts in financial markets. In addition, by using the powerful economic law of supply and demand, you can discern and observe trends in order to help you profitably make adjustments to your investment portfolio(s). Remember, the trend is your friend – unless, of course, you try to go against it…
Across every type of financial market, cycles will vary dramatically in price and duration. This includes stocks, bonds, oil, interest rates, currencies, gold and other commodities, among others. This is a great reason why it’s essential to properly allocate your assets in order to spread your overall portfolio risk, as well as increase the possibility of additional returns over time.
GDP
In what was the first of ultimately three revisions to the “final” number, real GDP for the second quarter grew at a 2.3% annual rate, the same growth rate the economy has had for the past year. In spite of tapering and the end of quantitative easing, real growth was revised up slightly for 2014 and for the first quarter of this year, turning the formerly negative quarter that started 2015 into one of (relatively) positive growth.
GDP data are a trailing/lagging indicator of how the economy has done so, while it makes for media fodder, it’s not really of much import, in my opinion. It’s already happened. It’s old news dressed up as new – that’s all.
Commodity comment
Lately, all the media would have you believe that lower commodity prices are a bad thing. (They also told us the high prices of three and four years ago were bad things. Consistency is not a requirement in financial reporting, it would appear.) So, we hear that this price weakness indicates a weakening global economy. For sure, it’s not good news for the producers of such things.
However, there’s a well-used phrase in the commodity pits that goes, “the cure for high commodity prices is…high prices.” Seems to me this is just the downward part of that cycle. Over time, commodities in general have tended to become cheaper due to increases in tech applications for the planting, harvesting, mining and extracting of these various products. The fact that we’re currently in a period of relatively slower global growth is the main cause of the drop in prices. I share what the late Julian Simon had to say. He believed that “the only scarcity that exists in the world is human ingenuity.” When that gets harnessed, look around. All we have today is due to that ingenuity coming to life…
The markets are likely going to be continuing their sideways dance now that we’re officially in summer, Wall Street speaking. Traders, the Fed, the whole gang is shoving off to the shore these next few weeks so, especially now, be very wary of headline-driven markets as a little action – good or bad – will likely have a large effect on an index.
Stay cool – in all sense of the term…
Cheers!
Mike
Securities and Investment Advisory Services offered through KMS Financial Services, Inc.
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Investing in securities of any type involves certain risks, including potential loss of principal. Investment return and principal value in a bond and/or securities portfolio will fluctuate so that investments, when sold or redeemed, may be worth more, or less, than the original investment.
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