Check Out Jonathan K. DeYoe in Huffington Post – Money

 

Volatility - Like Fishing On A Windy Lake.

Volatility – Like Fishing On A Windy Lake.

The Markets

After a week that left investors wondering what’s next – much like fishermen on a lake as the wind kicks up and the water gets choppy – the wind settled and the fish started biting. U.S. stock markets posted their best weekly returns in almost two years last week. When all was said and done, investors were $900 billion richer on paper, according to experts cited by Barron’s.

One of the most interesting things about the week was that little changed. The Eurozone’s precarious economic state did not stabilize. The Middle East remained in an uproar. The Russia-Ukraine conflict persisted, complete with sanctions. Ebola continued to be a threat, although vaccines are in the works. The pace of growth in China did not accelerate. In fact, a working paper published by the National Bureau of Economic Research suggested:

“There are substantial reasons that China and India may grow much less rapidly than is currently anticipated. Most importantly, history teaches that abnormally rapid growth is rarely persistent, even though economic forecasts invariably extrapolate recent growth. Indeed, regression to the mean is the empirically most salient feature of economic growth.”

Some things related to China changed last week, though. It launched a new infrastructure bank along with 20 other countries, including India. The bank is intended to complement or rival the World Bank, depending on whose rhetoric you believe.

So, why did markets bounce? Barron’s said it had a lot to do with the Federal Reserve. As monetary policy has become less easy and volatility has picked up, “turbulence was in the direction of deflation, with commodities – especially crude oil – sliding and government bond yields plunging further around the globe.” Enter St. Louis Fed President James Bullard who suggested quantitative easing could be extended, if economic data supported it.

In other words, weak inflation numbers could shape Fed policy and delay interest rate increases. That was the story the numbers on the Chicago Mercantile Exchange told, anyway. The probability of the Fed raising rates by September 2015 declined sharply last week, moving from 81 percent to 42 percent. The market’s strong positive response has been dubbed the ‘Bullard Bounce.’


Data as of 10/24/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

4.1%

6.3%

12.1%

16.1%

12.7%

6.0%

10-year Treasury Note (Yield Only)

2.3

NA

2.5

2.2

3.5

4.0

Gold (per ounce)

-0.1

2.6

-8.3

-9.3

3.2

11.1

Bloomberg Commodity Index

-0.7

-7.3

-8.3

-7.6

-2.9

-3.0

DJ Equity All REIT Total Return Index

3.2

21.2

13.8

15.5

17.8

8.9

S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

 

Sources:

http://online.barrons.com/articles/stocks-jump-ignoring-a-world-of-worry-1414219117?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-27-14_Barrons-Stocks_Jump_Ignoring_a_World_of_Worry-Footnote_1.pdf)

http://www.bbc.com/news/health-29756301

http://www.nber.org/papers/w20573

http://www.nytimes.com/2014/10/25/world/asia/china-signs-agreement-with-20-other-nations-to-establish-international-development-bank.html

http://www.reuters.com/article/2014/10/24/us-usa-fed-inflation-analysis-idUSKCN0ID0AD20141024

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