Janet Yellen and her team at the Federal Reserve Bank (Fed) decided that the best course of action for now is no new action. Very few things in the Fed’s official statement really changed. The markets were up… then down… then down some more… Not exactly calming words or action, but according to the economists’ predictions, not a big surprise either.
What does this all mean? Stock valuations remain high and again, no real progress towards a recession either.
John Hussmann probably states this the best, “Currently estimate a 10-year nominal expected total return for the S&P 500 close to zero – much the same as we projected in real time at the market peak in 2000. The Federal Reserve seems to have no idea what it has done. Poor long-term market returns and severe interim losses are now baked in the cake as a result of obscene valuations. There is no way to undo this outcome – only to manage the consequences.”1
It is hard to argue that the Fed has done the unprecedented with QE1, QE2, QE3…, and now having a difficult time undoing it. Rates may not go up at all this year now according to many predictions coming from the investment world. All you need to do is read and listen to the reactions on any financial website to see that this is what most believe to be the case.
With so many market hotspots like oil prices and foreign economic demands, it is hard to see rates rising within the next month, but the Fed has made it clear that they are just waiting for the opportunity.
There are many factors putting pressure on stock prices, which are very real. As oil prices go up, profitability of S&P 500 companies decline. (Bloomberg) — Falling oil prices and a strengthening dollar suggest earnings estimates for next year may be too high, according to David Bianco, chief U.S. equity strategist at Deutsche Bank AG. That is not exactly great news but it is where we are after this week.
It isn’t all bad news though. According to James Biancho, president of Biancho Research, this may mean that we can look forward to better times in a year from now.2 Certainly, few are estimating that the Fed will raise rates in October but December may be on the table if the economy continues to show improvement in the data.
There is a lot to continue to watch, but if the markets become healthy again, with PE ratios coming closer to long term averages, there could be some great buying opportunities. It has certainly been an interesting week in the world of high finance.
By: Ben Bimson, CIMA®, Financial Advisor, BCJ Financial Group
1- The Beauty of Truth and the Beast of Dogma, John P. Hussman, Ph.D., September 14, 2015, http://www.hussmanfunds.com/wmc/wmc150914.htm
Chart Source: On My Radar: “Dammit Janet”, Steve Blumenthal, September 18, 2015, http://www.cmgwealth.com/ri/on-my-radar-dammit-janet/
BCJ FG 15-37
Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory Service offered through BCJ Capital Management. World Equity Group, Inc. and BCJ Capital Management are independently owned and operated.
BCJ Capital Management is a (SEC) registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.