February 2016 Monthly Outlook – Growth scare or Bear market?
Growth Scare or Bear Market?
The depth and speed at which the stock market (basis S&P500) has fallen in January 2016 has many wondering if we are headed into a Bear market for stocks. Generally, bear markets are defined as a decline of 20% from the previous high. While some individual stocks, specifically in the oil/gas and manufacturing sectors are in a bear market, the overall S&P500 Index is not. So are we having a growth scare or are we heading into a bear market?
It’s worth putting the recent decline into perspective. First, the S&P 500 Index had risen 206.5% from the 2009 low of 666.79 on 3/6/2009 to the 12/31/15 closing of 2043.94 (source: Yahoo Finance)
Second, we have seen an extended period of limited volatility in stocks. Since the market bottom in March 2009 the S&P 500 experienced 10 major sell-offs with an average decline of 10.56% and duration of 64 days (source: Raymond James). The fact is that while these sharp sell-offs may seem to be more pronounced and scary in our modern world of 24/7 media coverage and Apps, they’re actually not as rare as you might think. To this point, Ben Casselman of Fivethirtyeight.com did a fantastic job of summarizing recent events: “Set aside the psychological importance of the New Year and what we’re really talking about is a market that lost 9 percent in 12 trading days (as of the end of 1/20/2016). That’s hardly unprecedented. We had equally bad 12-day stretches in 1950, 1955, 1957, 1962, 1966, 1970, 1973, 1974, 1978, 1979, 1981, 1987,1997, 1998, 2000, 2001, 2002, 2008, 2009, 2011 and 2015. That list includes some brutal recessions and memorable crashes, but also several incidents that proved little more than blips.”
So, bottom line, I am still very cautious on stocks and wouldn’t be surprised to see the market decline back into the 1,820 – 1,867 range on the S&P 500. I do expect volatility to remain elevated which will likely limit full year gains on the S&P 500 to the low single digit range.
The other reason I don’t foresee a bear market for stocks is that bear markets are usually accompanied by recessions. Yes, parts of the world, especially countries that export oil like Russia, are in recession. Even parts of our own economy, those tied to oil/gas and manufacturing, are close to recession levels. However, overall U.S. and Global economic growth is modest but steady and inflation is low. US and European consumers are bright spots as employment is improving and consumer sentiment is positive. Chinese and U.S. manufacturing are soft spots. The decline in oil prices is primarily due to oversupply and not to declining demand. I expect the oversupply to dissipate over the next 18 months. The chart below, courtesy of Oppeheimer Funds, nicely depicts where I feel we are in the economic cycle. I agree that we are likely in a period of moderate economic growth, that barring any unforeseen events, should continue throughout 2016.
Here is a link to my appearance on Fresh Outlook on 1/30/16 discussing the economy and financial markets:
February Calendar of Events (comments and additions for future months are always welcome)
- February is Black History Month. Let’s all strive for understanding and acceptance for people of all colors.
February 2nd Groundhog Day – let’s hope he sees his shadow
February 7th Super Bowl – call me sentimental but I hope Denver wins and Peyton Manning retires on top
February 8th Chinese New Year – the Year of the Monkey
February 9th Mardi Gras
February 10th Ash Wednesday
February 14th Valentine’s Day
February 15th Presidents Day
Sources: Raymond James & Associate, Yahoo Finance, Oppenheimer Funds
Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful. Past performance is no assurance of future results.
Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.
Information provided should not be construed as legal or tax advice. You should discuss any tax or legal matter with the appropriate professional.
mywealthdirectionblog.com 