Over the last five years, the stock market has dropped more than 5% eighteen times, and in each case, the market has rebounded to the tune of the S&P 500 rising just under 180% in the same time frame. This most current retreat has erased some $3 trillion from global equity markets.
- The threat posed by emerging markets is the greatest since 1998, and declines may worsen.
Fear is an interesting emotion and with the stock market, it is particularly interesting because it spreads so fast, and it makes rational folks act irrationally without much thought so quickly. What we are seeing today is fear spreading, but as I have written, it is good for the market. Rebalancing and sorting out the pressures makes the market more stable, ultimately.
As I write, the market has bounced from positive to negative and looks as if it might make a move to positive again in just a moment. In the meantime, the VIX is moving erratically as well. It appears folks are not quite sure what to do in this market, which speaks to the irrationally I mentioned a moment ago.
- Still, while U.S. stocks are being dragged down, the things that have kept market dips shallow in developed countries are intact. Corporate profits rose the fastest in two years last quarter, economists boosted projections for U.S. gross domestic product the first time in four months, and money-market indicators show no signs of strain.
- In fact there is so much cash in the system that the biggest problem in the short-term markets remains low rates. There is little evidence thus far that concerns about emerging markets have filtered into dollar funding markets broadly.”
Yet gold, that “other” barometer of fear, is currently at 1258, which puts it somewhere near the middle of a 10-day range between 1231 and 1275. This trade hardly shows fear and it shows some level of rationality, which, speaks to a belief that “this too shall pass.”
- Eurozone composite PMI rose to 52.9 in January from 52.1 in December as the services print edged up to 51.6 from 51. Of particular note, Spain’s composite PMI hit a 6 1/2 year peak of 54.8. “Spain and Ireland are now seeing robust growth, undergoing their strongest phases of expansion since 2007, while Italy is also returning to growth and France’s business sector is also showing signs of stabilizing,” Markit says.
- The U.S., Japan, and the euro area will all expand next year for the first time since 2010, according to economists surveyed by Bloomberg. With three of the four biggest economies, those regions account for about 50 percent of the world’s GDP.
Although, I don’t give much credence to economists and their predictions, the market does, so I lay them out here for you. Believe me, the big-money players are taking in what the economists are saying and they are taking in the constant flow of data that recently, overall, has pointed to a US economy getting stronger. “Ha,” you say. “What about the recent PMI data?”
True, the manufacturing numbers that just came in point in one direction, but keep in mind, only some 20% of US employment is in manufacturing. The vast amount of those employed in the US are in the Services sector, which includes jobs such as food service, retail, doctors, and Wall Street players.
- The ISM (Institute of Supply Management) Non-Manufacturing index for January was better than expected. The index shows the services sector of the economy did continue to expand for a 49th consecutive month. The index was reported at 54.0, which was above the consensus estimate for a reading of 53.8.
Still, we have the employment report coming out this Friday, and that could tip the market in either direction, depending on which way the report goes. But, in the end, until the emerging markets collapse, or until the economic and market fundamentals collapse, my bet is on the market finding a bottom sooner rather than later. BTW … The DIJA just went into the green, again. Oops! Back in the red …
Trade in the day; Invest in your life …
