We all have our pet peeves, and if there is one thing markets do NOT like, it is uncertainty. Unfortunately, we entered 2016 with a lot of unanswered questions:
• How much has China’s growth slowed? How will the country’s slower growth affect companies and investments around the globe?
• How will the Federal Reserve’s changing monetary policy affect the U.S. economy? How many times will it raise rates during 2016? Will the Fed change course?
• Will oil prices continue to move lower? Will they move higher? How could changing oil prices affect economic growth?
• How is the sharing economy (renting rooms in a home, offering rides for a price, sharing goods like automobiles and bikes) affecting economic growth in the United States?
• How will demographics – particularly the changing ratio of working people to retired people – affect economic growth?
• How will geopolitical risks affect markets during 2016?
Amidst all of this uncertainty, the words ‘market correction’ (a drop of at least 10 percent in the value of the market) and ‘bear market’ (a drop of 20 percent or more in the value of the market) are being bandied about frequently. According to Barron’s, the Standard & Poor’s 500 Index finished last week in correction territory. So, are we headed for a bear market? That remains to be seen.
Bear markets often are accompanied by recessions, and few experts believe a recession is likely in the United States during 2016. Historically, there have been bear markets which have occurred without a recession. These have lasted, on average, for about five months. That’s far shorter than the 20-month average length of bear markets that come in tandem with recessions.
One expert cited by Barron’s commented on the market downturn, “If there’s a silver lining, it’s that the market is a lot cheaper than it was a few months ago. The S&P 500 trades at 15.9 times 12-month forward earnings forecasts…back where valuations were at the beginning of 2014. That means there are values to be had.”
*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.
* Investing involves risk – including the loss of principal
* “Lots of Questions & Too Many Blowhards”