Despite China’s announcement that it would not pursue additional tariffs on U.S. vehicles and the unexpected high performance of both retail sales and industrial production in the U.S., the markets continued their rapid selloff throughout Friday’s trading session. All three of the major U.S. indices fell, a move that was set into motion not only by weaker than expected economic data from China but also growing concern over the international economy. Basically, various positive and negative economic forces continue to dramatically drive the U.S. markets up and down.
The recent run up in market volatility has investors spooked and sitting on the sidelines waiting until things calm down or reach some level of normality, whatever that is. Some bearish pundits are proclaiming the bull is dead and the bear is now ruling the day. Yet based on Raymond James’s top market strategist, Jeffrey Saut, that is simply not true based on the technical evidence.
Optimism in the markets and the economy has not appeared to reach “irrational exuberance” as the former Fed Chair Alan Greenspan once coined but the rise in the equities market has investors concerned about “the next shoe to drop”. One of the drivers recently has been the high likelihood of a corporate tax cut and tax reform. Scott Brown, Chief Economist for Raymond James opines, “While tax reform has provided a tailwind, we note several concerns regarding potential headwinds, including: the near hyperbolic move in equities coupled with the absence of a material correction; a widely expected rise in interest rates as the Fed reduces its balance sheet and remains in a tightening (rate hike) mode. While potentially healthy for lagging sectors of the market, this could presage a more material change in investor sentiment.”
According to the Department of Labor, there were 27.0 million “foreign-born” persons in the US labor force in 2016, comprising 16.9% of the American workforce. The percentage of “foreign-born” workers was 13.3% in 2000.
There are numerous prognosticators purporting extreme valuations by the so called “perma-bears” who tend to cost investors more than they save them by warning of a doom and gloom market scenario. We have indeed seen valuations run up to the latest forward PE ratio on the S&P of 17.8x forward estimates vs. 15.9 for the 25 year average. This is certainly no bargain pricing but neither is it extreme as we saw in 1999 when the S&P was valued at 25x forward estimates. Please see below the latest comments from Andrew Adams, the Raymond James Financial Strategist working with the well -seasoned Jeff Saut in an excerpt from Morning Tack dated 3/14/17 (a full copy is available upon request):
The current economic expansion doesn't look too bad "for its age", which by October, 2016 The US economy has been growing for the last 87months (i.e., no recession), an expansion exceeded in length only 3 times since 1900 (source: National Bureau of Economic Research).
I thought it would be nice to share a recent opinion on the market from Jeffrey Saut, Chief Investment Strategist at Raymond James.
“Time is the Archimedes’ lever of investing. Archimedes is often quoted as saying, “Give me a place to stand and a lever long enough, and I shall move the earth.”
Many investors believe Republican presidents mean better investment performance. However, the president—and the president’s party affiliation—have less to do with market performance than you might expect.
Just a few weeks ago, the stock market sunk in chaotic fashion in the wake of the surprise Brexit vote. And to many folks’ surprise, it came back with a vengeance and then some.
From a news standpoint, we have Europe still trying to recover, Ebola threatening to bring travel to a halt, Japan faltering, Russians hacking into our banking system, Quantitative Easing (QE= keeping interest rates low by buying treasuries) by the Federal Reserve ending and profit warnings getting issued on a daily basis. It’s October and there are plenty of scary stories in the air.
This is what the start of corrections look, sound and feel like. Frankly we may be overdue for a steep sell-off but that doesn’t necessarily mean this is the start of a crash or a bear market. It’s an opportunity. Conventional wisdom says that what goes up must come down. But even if you view market volatility as a normal occurrence, it can be difficult to handle when it's your money at stake. Though there's no foolproof way to handle the ups and downs of the stock market, but the following reminders can help.
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