Touchstone Market Update: What You Need to Know for the Fourth Quarter of 2015
By Steven Higgins, Financial Advisor
U.S. Stocks
Feeling Let Down?
It had been a while since stocks have retreated more than 10%, which is the official mark of a correction. The Summer of 2011 marked the last time investors needed libations to open their monthly statements. Four years later we are experiencing a solid, made in the USA correction. Historically, retreats of this magnitude happen every year and a half, but it had been a while, and investors have short memories. At its worst the S&P 500 tallied a 12.5% drop while the DOW gave up 14.63%. While historically irrelevant, investors were not happy. Sure, the Chinese economy is not growing as fast as it had, and Greece is still Greece, but there seems to be something irking the masses even more. Maybe it’s because since the year 2000, U.S. stocks have increased in value a just 1/5th the rate they had the previous 15 years. Or maybe, it’s because the mighty presidential election media cycle has taken off. Nevertheless, investors are going to be pressed to abandoned ship. For those who actually have long term goals…..make sure your short-term emotions don’t trick you. Data source: Yahoo Finance
European Stocks
A Race to the Bottom
It’s obvious that the European Central Bank (ECB) is in this for the long haul. The massive stimulus packages and the willingness to string Greece along signal a staunch commitment by the ECB to keep the Euro competitive and interest rates ultra low. A competitive Euro(also known as a weak Euro) make European exporters more competitive over seas. If the Euro is lower relative to the dollar, then BMWs are cheaper than Cadillacs. The only problem is, the U.S. seems reluctant to increase rates and China manipulated their currency to be even lower. So, it’s a race to the bottom to see who can be cheaper and more competitive. The U.S. will eventually raise rates, and that just may signal the start of the European recovery we’ve been waiting for. The start of 2015 was great for European stocks but the geopolitics took the wind out of the sails. European Stocks, dropped by 10.25% in the 3rd quarter and are down 7.25% for the year. Data source: Vanguard FTSE European Index
Fixed Income/Bonds: “ Yellen and Fed Leave Rates Unchanged”
It’s hard to believe that the stock correction over the summer had nothing to do with the Fed’s decision to not raise the Fed Funds rate. The Fed seems to have changed its role from being the inflation police to the keeper of the stock market. While economic growth has been slower than desired, there are many indicators the economy is on solid footing. Ultra low interest rates are safety devices for bad times, like life boats. When the storms pass and the ship is made safe, it’s a good idea to bring the life boats back in to make sure they are available for the next storm. We continue to maintain a stance of caution for bonds. The longer this goes on the more painful it will be. We believe the Fed should raise rates while they get to, rather than when they have to.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement or all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Steven Higgins and Allison DeYoung and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.
