Trying to Reason with Hurricane Season
As we enter hurricane season, the markets seem to swirl around as much as the latest tropical depressions that we hear about on a frequent basis this time of year. With the excessive amount of uncertainty that exists in the markets and the world economies, the direction and expectation of both changes daily based on the latest economic data released. The question remains, will the hurricane, or in this case, a double dip recession, hit, or will we escape with a little bad weather?
With few corporate earnings reports released in August, the markets had almost exclusive focus on economic data. Lackluster housing and unemployment numbers took its toll and the S&P 500 closed down almost 5% for the month. Just as quick as a newly named hurricane pops up on the radar, September data brought new life to the markets and a rally along with it. Reports out of China and Australia, as well as the U.S. show that the consumer is still spending as retail sales numbers were strong. In addition, there has been a healthy amount of merger and acquisition activity amongst corporations over the last few months. The two combined has given hope to a fair amount of economists and market analysts, including myself, that the chance of a double dip recession is lowering and we may be in an extended period of slow growth.
I find it significant to point out a couple technical indicators that I have been watching. The S&P 500’s 200 day moving average and the current trading range of the S&P 500. The S&P 500 has crossed over its 200 day moving average within the last few days. If it can hold above this number in the short term, it can be a bullish sign that the markets may continue to move higher. However, the S&P 500 has also been in a trading range between 1040 and 1130 for the last few months. At the time of this newsletter, we are approaching the top of that range. I don’t see there being a significant enough catalyst to push us through this range in the short term and would not be surprised to see the market selloff slightly on what looks like an overbought condition.
Looking forward over the next few months, I would expect that we could get a boost in the form of the November elections if the Republicans can gain control of the House of Representatives or if the current administration extends the tax cuts that are set to expire at the end of this year. I also think that with the start of corporate earnings season next month, the comparisons to prior year quarterly earnings will have a significant effect on the markets. This time last year was the first full quarter that we were out of the prior recession. Thus, will be a better gauge on the heath of companies if they can show increases versus their same quarter last year.
I again stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties.
Disclaimer
The information contained herein is not considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Past performance is no guarantee of future results.
