Although stocks began 2016 with their lowest performance ever for the first two weeks, analysts remain upbeat about the U.S. economy. Liz Ann Sonders and her team at Schwab explain why there are few similarities to the markets in 2016 and those of the Great Recession in 2008. At this point, Wharton School finance professor Jeremy Siegel wonders if he’s “the last bull standing”. He acknowledges that bearish sentiments are rampant, but says investors shouldn’t fear that rate hikes from the Federal Reserve will drive markets downward. The Leading Economic Index for December of 2015 has been released. While this predictor of future economic activity showed a slight decrease in December, the overall trend continues to rise. Advisor Perspectives offers analysis and graphs about the current state of the markets.
Looking For Answers– Stocks have taken a pounding and investor sentiment has cratered with uncertainty surrounding U.S. growth, global growth (especially in China), currencies, commodities, and Fed policy. There are many comparisons being made to the financial crisis which erupted in 2008, but Liz Ann Sonders and her team at Schwab don’t think we are in a similar situation. The financial system isn’t crumbling, and actually businesses are still relatively upbeat. Leverage in the financial system is a fraction of what it was in 2008; and while consumers—the major drivers of the U.S. economy—were heavily exposed to the financial crisis via housing; today they are on the “right side” of one of the causes of volatility by being oil consumers. Even if it gets worse from here before it gets better, remember that panic is not an investment strategy. It’s never fun to live through turbulent market times, but it can flush out some of the excesses in the market and set up the next move higher. As always, patience, diversification, discipline, and a long-term perspective are required. Read more…
Jeremy Siegel: No Bubble, No Reason To Fear The Fed– “Everyone fears the Fed and (multiple) hikes,” Siegel said earlier this week. “But since 2008, they have predicted (a series of hikes) and never did it. The market knows they are never going to do it.” In fact, he adds, the market is indicating that only about one-third of the hikes the Fed has described as a possibility are likely to happen. The Wharton professor also explained why the current level of price to earnings — just under 17 on average — is acceptable. Read more…
Leading Economic Index (LEI): Slight Decrease In December– “The U.S. LEI fell slightly in December, led by a drop in housing permits and weak new orders in manufacturing,” said Ataman Ozyildirim, the Director of Business Cycles and Growth Research at The Conference Board. “However, the index continues to suggest moderate growth in the near-term despite the economy losing some momentum at the end of 2015. While the LEI’s growth rate has been on the decline, it’s too early to interpret this as a substantial rise in the risk of recession.” Read more…
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John R. Day, Bill Ennis, Stephanie Davidson and Matt Heller