And we are back.
Another whipsaw two weeks are now behind us. Volatility is the name of the game right now. Last week saw average equity indexes hit hard negatively and this week was bounce week.
Why are we doing this? The markets are still looking for direction and remain firmly range-bound as there is massive economic data digested on a moment by moment basis and all trying to find a trend and read into the trend how the Fed may or may not react. This is probably going to be the way the markets behave up to the time the Fed begins actions.
Strangely enough, markets seem really to be ready for the Fed to stop talking and just get on with it. This was punctuated on Wednesday when the Fed minutes came out and markets rallied at the likelihood of the Fed actually raising rates. The markets just want to know what to expect. They seem more afraid of a surprise than afraid of the action.
In the midst of all the movement, it can begin to feel like we can’t make headway. The reason it feels that way is because looser and gainers are about even and swap back and forth daily… which means, we go a long way to go nowhere. This is probably the most frustrating market environment for investors.
INTERVIEW WITH BEN BIMSON: CLICK HERE TO WATCH THE VIDEO
In order to properly interpret what is going on we have to look at facts and not just at market sentiments. The facts are, things are still slowly improving. However, PE ratios are still a conundrum for us. The following quote from an article on CNBC is becoming a resounding crescendo from
Blackstone President and COO Tony James said Tuesday, “Stock market valuations are ahead of themselves, and a correction is coming.”
James ticked off a number of headwinds: the impact of the Paris terror attacks, higher U.S. interest rates on the horizon, weaker growth in China and problems in South American economies.
“The cumulative effect of that is, where do you look for good news that’s not already reflected in the market? Earnings of the S&P are flat at best, so I think stock prices have had a great run and it’s time for a pause,” he told CNBC’s Squawk Box. “We see a bit of a correction coming. Blackstone has exited ‘a lot of investments’ where it can and is poised to take advantage of a correction with a lot of capital,” he said.
When, how much and will it go higher than it is now before anything like this happens is the great unknown. The good news is that bear market indicators are further indicating a low likelihood of a global recession. Indicators are now down to less than a 15% probability according to Ned Davis Research. Leading indicators are looking moderate as the chart below shows.
So while there are going to be plenty of things to worry about, we are still not in dire straits yet. We anticipate more volatility in the short term and especially as we approach the next Fed meeting on December 15 and 16th.
Economic data is running the daily headlines and all eyes on the Fed. Keep yourselves strapped in. Once markets digest more of the Fed intentions and movements, direction will become much clearer. Things might be bouncy for a bit longer.
Written By: Benjamin Bimson CIMA®, Financial Advisor with BCJ Financial Group
BCJ FG 15-102
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