Market Recap – Plummeting Oil Prices & Slowdown In China Fuel Uncertainty

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Market Digest – Week Ending 1/29

Stocks gained for the week, softening a disappointing first month for 2016. The S&P 500 finished January down 5.2%. Small caps and international stocks fared modestly worst. Declines were driven by fear of dislocation from plummeting oil prices and unknown consequences of a slowdown in China. Gains for the week were driven by a surprise stimulus move from the Bank of Japan to set its short-term interest rate below zero for the first time. The Fed also expressed concern about market turbulence and growth overseas but did not take any action.

Weekly Returns:

S&P 500: 1,907 (+1.6%)
FTSE All-World ex-US: (+2.3%)
US 10 Year Treasury Yield: 2.92% (-0.14%)
Gold: $1,116 (+1.6%)
USD/EUR: $1.083 (+0.3%)

Major Events:

• Tuesday – Apple announced disappointing sales growth for Q4. Shares lost 4% for the week.
• Thursday – Microsoft announced revenue and sales which exceeded most expectations.
• Thursday – GOP frontrunner Donald Trump skipped the final debate before the Iowa primaries and hosted his own event instead. The move seemed to be successful.
• Thursday – Oil prices surged after Russia’s oil minister said the country was willing to engage in discussion with Saudi Arabia about production limits.
• Friday – Global stocks rallied as the Bank of Japan announced negative short-term rates.
• Friday – Q4 US GDP growth was reported at 0.6%, lower than most expectations.

Our take:

As far as investing goes, just about everyone is glad January is over. A big final day rally limited the damage but the global stock market still lost about 6%. Where do things go from here? Nobody knows and guessing is usually a mistake.

We like to remind people that stocks go up more than they go down, which is as good a reason to own them as any. But bear markets are common. We’ve had 25 since 1926. It just so happens the last two were really big and massively uncomfortable for most people. But they were extreme compared to most. Even if things get worse, we view it as highly unlikely that the magnitude of the next bear market will rival the last two. That is especially true if you are globally diversified because valuations overseas are relatively attractive, in our view.

Wildly volatile (and mostly down) oil prices are currently perceived as a negative because they cause uncertainty. That could remain true for a few more months, but ultimately lower energy costs are a net positive for the economy and should be a bullish driver at some point. Q4 US GDP came it at just 0.6%. There are a lot of signs the US and global economy could be slipping into recession but economic growth is just as hard to predict as the stock market.

When most people are focused on downside potential, stocks frequently like to surprise by moving higher. Volatility is likely to remain heightened in the coming months and we will likely see more months with big moves – both up and down. It will be interesting for those watching closely, but we expect that if we look back in a few years, stocks will have provided a nice positive return.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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