The Stock Market “Summer of Love” – Will the Upward Trend Continue, or Are Winter Storms on the Horizon?
- On September 15, 2016
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By Phil Ciano
After a very volatile start to 2016, the markets certainly leveled off. Once the markets settled down, it was smooth sailing, with all three indexes (S&P 500, Nasdaq and Dow Jones) posting record highs on August 15, 2016. Back in January, very few “experts” would have predicted such an explosion. According to Ernie Cecilia (CIO at Bryn Mawr Trust), “The Market right now is floating up on not a lot of news… there’s a lack of alternatives into other instruments… ”
According to most experts, the recent surge in the stock markets is more a by-product of low interest rates forcing investors to hunt for yield, or what is commonly known as a “return” on one’s investable funds. “The Market should continue to go higher on the no-alternative factor,” according to Peter Cardillo, Chief Market Economist at First Standard Financial. “The Market is feeding on itself.”
In addition to the stock market rise, gold is up 24% for the year and the dollar continues its rise which started this summer. Even oil rose 3% as it approached $50/barrel in August, 2016.
Most remarkably, at the close of the second quarter 2016, 71% of the S&P 500 companies who reported their quarterly results exceeded their estimates.
So, with all this glowing optimism, what awaits the retail investor as we come down the 2016 home stretch?
Some experts believe there is a “quiet before the storm” brewing. In the 30 days leading up to August 23rd, the U.S. Stock Market saw volatility fall to its lowest level in more than two decades. Interestingly, after the August 15th peak in the markets, the Dow Jones actually ended the month down 0.2%, ending a 6-month winning streak. Are these minor adjustments or forewarnings of bad things to come?
Additionally, the ever-present question about whether the Fed will raise interest rates continues to haunt investors. Many are predicting a raise in the rates, but we’ve heard this before. Certainly, whatever the Fed does, its decision will have a major impact across the markets.
Likewise, the 2016 presidential and related elections will certainly impact market performance. For those of you who believe a Trump victory will naturally bump up the indexes, be careful. In every election cycle since World War II, the Dow Jones industrials have posted bigger average returns under Democratic presidents, according to the Stock Trader’s Almanac.
At the end of the day, no one has a crystal ball. Investors remain jittery as evidenced by last Friday’s 40% spike in the CBOE Volatility Index (the market’s fear gauge). You should continue to communicate openly with your financial advisor regarding your goals, objectives and risk tolerance.
For questions concerning negligent, fraudulent or other misconduct by your broker or irregularities in your investment accounts, contact Phil Ciano or Andy Goldwasser at 216-658-9900.