Week in Brief: January 8

January 11, 2016

January's have been historically prophetic in determining the market's path for the year. And it's hard to feel good about what has transpired thus far.
Markets defied the last decade's pattern by denying investors a December rally and ending the year on a Grinch-like note. Adding insult to injury, stocks opened the year with one of their worst ever first-week performances. Officially sending investors into paroxysm. Understandably so.
Economic trouble in China. Spiking stock volatility. Future rate-hike fears. Deflationary concerns. High-yield bond implosions. Commodity price weakness. Tumult in the oil patch. What's not to fear?
Worst of all? The financial reporting around the news. As the blathering punditocracy would have you believing that the financial apocalypse was - yet again - upon us.
Fact is, the market traded in a 12.4 percent range throughout the year. Narrower than the traditional range of 14 percent the market has annually traipsed since 1975. So the market actually swung to and fro less than it normally might.
Moreover, the China slowdown story was way overdone. All emerging economies eventually slow. Especially one as large as China. And considering that China remains a huge, centrally managed communist economy? It's a wonder it's taken this long.
The U.S. sends less than one percent of exports to China. And China's imports become bargains to American shoppers as China depreciates its currency. Yet, during the aforementioned reports of the 12.4 percent market correction, one could have inferred that the world was ending. Remember, the media's primary objective is advertising sales.
Some have asked, "Time to raise cash?" Not yet. Here's why.
As this week's essay (Soothsayers and Monkey Brains) attests, the S&P 500 remains in the same trading range it's inhabited for 20 months. Tuesday's New York Stock Exchange McClellan Oscillator's reading of -66 reveals the stock market as extremely oversold. Due for a bounce. Doesn't guarantee one. But that's been the pattern repeated time and again for nearly two years. And until that changes, investors should not change their plans.
Finally, the forecasts heading into Q4 earnings season look like a tire fire. As analysts anticipate a 6.13 percent decline in corporate earnings. With the energy sector being the primary earnings detractor. But, don't despair just yet. The last four quarters, analysts have forecast negative earnings only to see companies beat expectations and post positive earnings growth. Sending stocks higher during each period.
While this quarter's sordid expectations appear to be a bridge too far, let's not deny companies the benefit of the doubt. They've earned it.
In the Middle East, recent turmoil shows no signs of abating.
Iraqi and U.S. military efforts made progress against ISIS forces in Iraq, retaking the town of Ramadi (for the second time). Yet, there remains much to be done. As U.S. forces wearily eye Mosul, Raqqa, and a host of other ISIS strongholds throughout Iraq and Syria.
Regarding the administration's nuclear deal with Iran, I believe I've missed something.
Since the agreement's completion in July, Iran's Supreme Leader Ayatollah Khamenei has stepped up arrests of political opponents and free speech advocates, including an American journalist who remains in jail. Further, the Iranians recently fired several missiles within 1500 yards of a U.S. naval vessel. And yesterday, the day of Obama's State of the Union Address, Iran took two U.S. Naval vessels into custody. Including ten American crewman. As I write this, the situation is hours old.
During prayers last week, Khamenei explained, "Americans have set their eyes covetously on elections, but the great and vigilant nation of Iran will act contrary to the enemies' will, whether it be in elections or on other issues, and as before will punch them in the mouth."
Quite the holy man, eh? Those comments come on the eve of economic sanctions relief. After which the Iranian's will received roughly $150 billion in frozen assets, and regain the ability to restore their economy through free trade and selling their oil in global markets.
Yet, American pols continue to call the arrangement with Iran a 'deal?'
Perhaps the U.S. state department need re-evaluate its diplomatic negotiation tactics. Because I'm having a hard time recalling any real Iranian concessions.
Politically, Trump continues to lead all comers in the GOP nomination stakes. And last week, a survey by Washington-based Mercury Analytics revealed that nearly 20 percent of likely Democratic voters say they'd cross sides and vote for Trump.
Mercury CEO Ron Howard, a Democrat whose firm works for both parties, concedes, "We expected Trump's first campaign spot to strongly appeal to Republican Trump supporters, with little impact - or in fact negative impact - on Democratic or independent voters."
He continues, "The challenge to Hillary, if Trump is the nominee and pivots to the center in the general election as a problem-solving, independent-minded, successful 'get it done' businessman is that Democrats will no longer be able to count on his personality and outrageous sound bites to disqualify him in the voters' minds."
With the media doing everything it can to disqualify The Donald as a viable candidate, voters continue to find resonance in his 'not-politics-as-usual' message.
President Obama will deliver his final State of the Union address tonight. Spokesmen say it will be his most brief, featuring progress achieved through his presidency thus far. And discussing the issues he plans to tackle before his departure.
Finally, China. Economists argue of the prospective damage wrought by the Fed in its efforts to manage the U.S. economy these last six years. China's issues are exponentially worse. The definitive example of a large, micro-managed centrally controlled economy incapable of allowing market forces sort out the inevitable growing pains. Each time Xi Jinping and the party apparatus meddle in an effort to control the uncontrollable, matters worsen.
Does a China downturn affect the U.S. economy? Indirectly.
Of all nations, the U.S. remains most buffered from outside economic malaise as only 13 percent of the U.S. is derived from exports. Most of which goes to our biggest trading partner, Europe. But, Europe's biggest trading partner is - you guessed it - China. So, if China slows, then Europe slows. Hurting the American companies that sell there.
Eventually, the Chinese Communist Party will learn to get out of its own way. Between here and there, however, there will be fireworks. Pun intended.
Bottom line? Many worrying trends and events occurring simultaneously. All of which eat at our little monkey brains. Like the itch beneath a cast that - try as you might - simply cannot be scratched.
Still, considering the big four indicators, there remains scant cause for recessionary fears. As the chart below shows, there's little recessionary evidence within the U.S. economy.
The Good
ISM non-manufacturing remained strong, if not a touch beneath expectations... Bullish sentiment hit a new low (a contrarian positive)... Private job growth was strong... The employment report was strong...
The Bad
ISM manufacturing hit contraction territory, fell short of expectations... Auto sales fell to lowest rate since June... Construction spending fell by 0.4%... Wholesale sales disappointed to levels sometimes "associated with recessions."...
The Ugly
North Korea? A hydrogen bomb? Millions hungry? No economic prospects? The Seth Rogen and James Franco movie about Kim Jong Un, "The Interview," was spot on. Guy's a lunatic.
Weekly Results
Major markets finished lower last week. The DJIA fell 6.19%, the S&P 500 lost 5.96%, and the Nasdaq declined 7.26%. Small cap stocks dropped 7.90%. And the 10-year Treasury bond yield 15 basis points to 2.12%. Gold lost $42.74 per ounce, or 4.03%.

Securities offered through Dempsey Lord Smith LLC – Dempsey Lord Smith LLC, Rome, GA Member FINRA / SIPC / MSRB.

Advisory Services offered through Dempsey Lord Smith, LLC, an SEC Registered Investment Advisor. Clearing through and accounts held at Charles Schwab & Co., Inc.

Dempsey Lord Smith, LLC nor Hyde Park Wealth Advisors LLC provides tax or legal advice and you should consult your accountant and/or attorney if considering an investment of this type. Hyde Park Wealth Advisors LLC is not controlled by or a subsidiary of Dempsey Lord Smith LLC. Investing in Alternative Investments come with a variety of risks that could result in a complete loss of principal investment.

Alternative Investments offered as private placement securities are offered only to qualified accredited investors via confidential private placement memorandum. Income and returns are not guaranteed and there are no assurances investments will meet their stated objectives.

© 2024 Hyde Park Wealth Advisors. All Rights Reserved