Market Digest – Week Ending 1/22
Stocks rebounded from a panicked start this week to finish positive. The S&P 500 posted a 1.4% gain while international stocks rose 2.4%. There was little concrete news on the way down or on the rebound. European and Japanese central bank comments indicating more stimuli may be on the way provided encouragement to buyers. Oil initially sold off on inventory numbers then rebounded on feelings prices had dropped too far coupled with an expected spike in demand from a coming storm on the East Coast.
S&P 500: 1,907 (+1.4%)
FTSE All-World ex-US: (+2.4%)
US 10 Year Treasury Yield: 2.06% (+0.03%)
Gold: $1,098 (+0.9%)
USD/EUR: $1.080 (-1.1%)
• Monday – Crude oil fell to its lowest level in 12 years as traders reacted to lifting of sanctions on Iran.
• Tuesday – Netflix reported higher than expected international subscriber growth, but lower profit on higher content costs. Shares were little changed.
• Tuesday – Carl Icahn reiterated his push to encourage AIG to split its businesses.
• Wednesday – The S&P 500 dropped nearly 4% before recovering to a loss of 1% for the day. The ten year treasury yield dipped below 2%.
• Thursday – The weekly number of Americans filing for unemployment reached a six month high, sparking concerns about the strength of the labor market.
• Thursday – Oil prices surged after inventory reports showed slower growth than feared.
• Friday – Global stocks rallied as investors welcomed indications of more central bank stimulus in Europe and Japan.
The first positive week of the year is a welcome event. If you were watching along the way, it was a wild ride. The S&P 500 was down almost 4% intra-day on Wednesday, bringing the index into double digit negative territory for the year before rebounding sharply for the remainder of the week.
The correction feels a lot like the one in August. It has been a quick, sharp drop with little concrete news driving it. The primary fears are “China” and uncertainty created by plummeting oil prices. In August we felt more confident in saying market activity was a classic correction and was likely to rebound. This time (while it is possible Wednesday’s panicked early morning selling marked a bottom) we think there is more uncertainty.
We don’t put much credence in technical analysis or charting, but the fact that the rebound from August failed to make a new high and the decline this time did make a new low is discomforting. We don’t know which way stocks will go, but we think investors should stick to long term strategies. Many are scared of a repeat of 2008, but it is worth considering that was a very extreme bear market. If we have another full-fledged bear, it is still unlikely things would get that ugly and we may already be through much of it. US stocks have held up relatively well until just recently but international stocks, high yield bonds and commodities have been beaten up for some time. Much or all of the pain here is already in the past.
No matter what, recent market activity justifies some uneasiness. But if you have a global, multi-asset class diversified portfolio, we think you will be well positioned to ride this one out and may even be pleasantly surprised by some asset classes that have been out of favor recently.
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