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Feb 15

The Market Today 2/11/16: Cautious

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Last year was one of the most frustrating years in investing that I have had in my 23 years in the business. So far, in 2016, it hasn’t been any better! January was extraordinarily brutal, and February has not been a picnic. As we stand as of today’s close, there is some optimism. Before I go there, I want to touch on what has caused the significant selling. First, the slow down in global economic growth. This was sparked in China in January. While the Chinese markets have not improved at all, their currency situation may have. In other words, the decline in the Chinese Yuan has at least temporarily abated. Then, the Japanese central bank went to negative interest rates, joining their counterparts in Europe. Negative interest rates are a combination of low interest rates, and then subtract the inflation rate, that is how you get negative interest rates. This week, since markets were in rapid decline, the flight to safety into bonds, pushed down interest rates on the key 10 year interest rate below 1.6% mid-week. Due to this, many thought that the US would be next, to go into negative interest rates. Late in Thursday’s trade, one Fed Governor stated that there is no way the US would go to negative interest rates. Just before he said this, the market briefly broke the January low of 1,812, then rallied sharply higher. Then, the market rallied sharply today. What will be interesting, is that since China was closed all week due to the Lunar New Year, and our markets closed on Monday, is how will the China’s market do on Monday, and how will the reaction in the US be? We will find out on Tuesday. For now, I am cautious, but optimistic, depending on how our markets open and close on Tuesday!

Cautious: Stocks

This has been a very volatile week to say the least. There are still many questions that need to be answered. For that, I expect the volatility to remain elevated in the near term. I mentioned earlier, that I see some optimism. First, investor sentiment is now worse than it was during the financial crisis!! Then, this week, we have seen the re-test of the January low’s of 1,812. So far, the retest has been successful. As I mentioned on my video to my clients, we really need to see the market move back above 1.950. Should this happen, I would then feel convinced that the market has turned the corner, and the uptrend remain intact. As i mentioned, we briefly broke the January low’s, and bounced. It did close above the important 1.850 resistance, but closed just below the 1.880 resistance. Now, if you look at the chart, I highlighted the three resistance levels of: 1,880, 1,920,and 1,950. Since the Fed Governor stated there is no way the US will go to negative interest rates, the market has rallied. Going with the thought, that China will not be a disaster on Monday, our markets should continue to the upside from today. For these reason’s, I am cautious, yet optimistic!

Cautious: Bonds

Not all the fun has been seen in the stock market. For those who watch the bond market, there has been plenty of fireworks in the bond market. We have seen the interest rate on the key 10 year US Treasury note break under 2%, and get as low as 1.56%! Following the events of today, it did rebound, to close at 1.74%. Being the fact the rate is still below 2%, I have to remain cautious on the stock market. I would like to see the S&P break back above 1,920 in the short term, and see the interest rate back above 2% at the same time. This would increase my confidence that the stock market has found a bottom. Stay tuned, this will be another fun week!

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information, and expert advice on portfolio construction, and helping client’s navigate through market turmoil, and letting them know whether I am cautious, optimistic, or perhaps, both at the same time!

 

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