Advisor Insights Market News Weekly Market Commentary

BCJ Market Commentary for December 29, 2015

market commentary

As we recover from the  jingling of bells, roasted chestnuts (does anybody actually like these?), decadent food and sweets… it is time to turn our minds and attention to 2016.

Written by: Benjamin Bimson CIMA® / BCJ Financial Group

What do we have to look forward to? What lies ahead? Adventure!

This is the way we like to look at it, because we only know for certain as we experience. We can project and we can prepare, which we absolutely believe in, but we cannot fore-tell.

There have been some interesting things in 2015 and a whole lot of waiting. Waiting for the Fed to finally come off zero interest rates, waiting for Europe to figure out what to do with Greece, waiting for Oil to hit bottom and stabilize, etc. Markets do not like waiting. They are like children on Christmas Eve…

 

watch_mkt_comm

 

One very interesting thing to look at is the amount of trust the Fed has from the public. This is largely the reason all the waiting and Fed talk took over the commentary and market focus.

One study I really find interesting is the amount of movement the Fed has had on the stock market as measured by the S&P 500. The sheer faith in the system is staggering. With Fed activity set to be a major theme in 2016, it is worth noting as we look forward.

The first chart is a comparison of the S&P 500 since June 1997 until today. 147 Fed meetings (they each last 2 days). The red line represents what the markets have done. The blue line is if we didn’t count any of the 2-day Fed meetings.

 

2015-12-23_11-03-42

Chart Source: Ned’s Insights – Institutional Hotline. Ned Davis Research Group. Ned Davis. December 23, 2015. [12/23/15]

 

It is shocking to see that really the S&P 500 has become extremely reliant on Fed activity (irrespective of tightening or easing). Without Fed activity, 18.5 years and almost 0 gain. With Fed activity, more than double.

We do not want to draw too many conclusions since the Fed is directly involved in steering monetary policy, but this is really compelling and a reason not to fear the Fed movements. This did lead to excessive optimism in the Fed (not normally a good thing) going into this December meeting.

However, the following chart shows that it has come back down to a more reasonable level and that could mean that the “Santa Claus” rally can get on with it.

 

Chart Source: Ned’s Insights – Institutional Hotline. Ned Davis Research Group. Ned Davis. December 23, 2015. [12/23/15]

Chart Source: Ned’s Insights – Institutional Hotline. Ned Davis Research Group. Ned Davis. December 23, 2015. [12/23/15]

 

This is all confirming a positive outlook for 2016, despite the probability of volatility for a number of reasons. First there will be lots of emphasis on corporate earnings, economic data, Fed meetings and the Presidential Election.

Oil may or may not be a major factor driving market movements but that remains a possible headline risk. Greece may also rejoin the headlines at some point which could be another topic.

It will really be interesting to see the world equity markets in light of the QE that they are now getting. Will it be as prosperous as the US equity markets were in the QE heydays? It looks like it could be.

We are looking very closely at these elements to help where they were a bit of a drag over 2015. US markets will be positive most likely, but they may not be putting up really big numbers.

We look forward to 2016 with you all. This is going to be another short trading week and we anticipate a wonderful 2016 with you. Goodbye to 2015; may you rest in peace and we are not going to miss you. Have a wonderful and safe New Years! We will see you on the other side!

 

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