The markets have seen 5 straight days with a 1% move or more on the close. Oddly, that has ended with just a 1% improvement. So as we can see the back and forth movement continues.
After Fed minutes were released yesterday, could there have been a shift in perception of the “risk of a rate hike” story? Buyers slowly dipped into the market but the hazy feeling on the horizon continues even as gold finds a new 6-year low this week on the back of the terrorist events in Paris.
Could it be that the market in general is beginning to not only expect – but importantly, accept – the upcoming shift in interest rates? This would be a good thing.
We have stated for many months now that the Fed needs to raise rates and move forward. We have continued to suggest that the policy has long since worn out its welcome. Keeping rates low only keeps the fear simmering close to the surface. We will find that if we wake up 18 months from now and rates are 150 basis points higher, the economy will very likely be doing quite well.
Remember, the bond market itself has done most of the heavy lifting in the rate world. As “fear-driven money flows” are soaked up by low yielding bond issuance, the emotional charges will ebb.
I repeat–there will be a day when we will thank our lucky stars for so much fear during the repair and recovery from 2008-2009.
The Only Bad News?
Well sadly, if the market slowly begins to accept the rate hike cycle kick-off with less of an emotional roller-coaster response, this could indeed lessen the odds for another spike down in market values.
Keep in mind – a spike down would be something to take extreme advantage of were it to unfold during the Holiday haze.
As I have repeated time and again in recent years, a new secular bull market is much more difficult to invest in as the hope is always for a “better deal”.
The Big Lesson?
After all of the chatter, the rolling waves of fear and the ink spilled about “the next correction”, the important lesson is this: while only a short time ago in the grand scheme of things, the long awaited correction for the summer swoon was technically all complete d in one day.
Check your charts. In fact, the lowest points the markets reached in late August were actually only traded to for about 30 minutes. At the extremes, less than 15 minutes.
Imagine that for a moment, the entire depth of the corrective action via the averages was less than a day long. I liken it to the last 10 minutes of the trading day on October 19, 1987.
Markets never went to those lows again.
That Being Said
While the averages have recovered to unchanged on the year (give or take a percent on the bulk of averages), the internal sector strife has surely been a struggle. It seems to me that we have witnessed a sector by sector – rolling bear market – while averages stayed somewhat steady.
Just FYI: The process has the footprints of HFT in that if Wal-Mart misses by a penny, any big box retailer is down nearly double digit percentages within moments. Sure, we are all emotional but it is hard to react that quickly en masse on any news.
Watching the double digit moves happen literally within seconds of announcements is more than somewhat suspect.
But heck, maybe its just me being too slow : )
Tough Years Followed By….
Is there some good news hidden in the outcomes of what has been a very messy year in the markets (unless you bet it all on Google or Amazon)?
History tells us that digestion/churn years are much more often than not followed by goo d years. Think of this churn we have had to trudge through as the process of pressing down a spring, coiling for future upside pressures – and surprises.
Due to technological advances companies have found incredibly quick ways to advance improvement when they hit setbacks. Decisions are made much more quickly, improvement steps are followed much more quickly and dynamic productivity steps are made and implemented much more quickly.
Hence, while it is not new that any stock can suffer a quarter or two of difficulty – this has been and will always be the case – the pace at which they can recover from missteps or problems has changed dynamically.
The blur and haze of this year will begin to burn away. While the Holiday Season is nearly upon us, let’s use the Season to recognize that the larger picture here in the states is still very, very positive.
Sometimes is moves at what appears to be a glacial pace – but we have tremendous tailwinds pushing us forward. Some of the most dynamic demographic events in our history are set to unfold as Gen Y moves into management, Gen Z anchors yet another major-league sized generation and the Baby Boom explodes into their retirement years with a bang – not a whimper.
The Bottom Line?
Holidays are nearly here. We wish you and yours the very best of the Season as always.
The news will do what it does in the summer – media will turn up the volume as we all fade into spending time with family and friends. Expect any dip to be an opportunity for the long term.
While many will not be watching as much, a leak up is surely a potential as the nervous nellies will even stop paying attention. It’s called the Santa Claus rally for a reason and would surely be a surprise for most.
Use dips to act for long-term goals as my fear remains the same as it has been for almost three years now: Our “corrections” to take advantage of will become fewer and farther between. The latest has proven no different.
We will have a very nice Q3 video update for you before the Holiday break. Could be as late as Monday’s email. We are producing it now and will have it right at 10 minutes or so in length.
As always, drop a note if you have any questions. Always here to help where we can.
Pray for some price setbacks, stay patient and take advantage of them when they arrive.