Some people sold in May and went away.  I just went away and came back Saint Ledger’s day.  What did I miss? 

The Big Picture

A lot of hand-wringing for one.  Having reached higher and higher for much of the spring, the major market indices continued to score record high closes right up and into July.  Then the fat fell into the fire.

Greece, unable to pay its debts, asked the Eurozone leaders for relief.  The Eurozone leaders asked for more austerity.  The Greek citizens revolted.  A referendum was held and voters said no to more pain.  The Prime Minister, Tsipras, resigned only to be re-elected and agreed to those same austerity proposals rejected by the voters.  Back to square one.

The world’s number two economy, China, showed signs of slowing.  Never mind that many investors never trusted the data out of China – suddenly the news that China’s economic growth had slipped from it’s targeted 7% pace down to 6.9% was all the bears needed to initiate the much awaited and anticipated U.S.stock market sell-off.

And sell-off we did.  The Dow Jones Industrial average plunged 6.6% in the month of August, the worst performance for the index since May, 2010.  The NASDAQ shed 6.9% in August, followed closely by the S&P 500 index, which lost 6.26% in August, but gave back 12% from it’s May 21st record close. Investors were torn between a correction or an outright bear market as the sell-off accelerated.

September saw major indices break their 50-day and 200-day moving averages, a technically bearish indicator.  Volume grew on the downside and vanished on rallies.  The bears were out for blood.

Then came October, considered by many to be the worst month for stocks. Instead of repeating the crash of 1987 or 2009, October of 2015 proved to be the best October since 2011.  Part of the about-face came from the Federal Reserve, which held interest rates steady at its September FOMC meeting.

Investors constantly climb a wall or worry.  The reason this time is the zero interest rate policy that has been in place since December 16, 2008.  Short-term interest rates have been held at zero so that the U.S. economy can recover and grow from the implosion caused by the 2008 financial meltdown.  With signs of a lasting recovery in the U.S., investors no longer guess “if” the Fed will raise rates, now its a matter of “when”.

With the September meeting minutes showing steady as she goes policy, attention now turns to the December 15-16 meeting, the potential for a quarter percent hike in short term rates, and the impact that rate hike may have on the economy, corporate earnings and stock prices.

I, Investor

The earnings game continues, with warnings dampening expectations.  So far, out of the 341 companies that have reported earnings, 72% beat expectations. 43% have reported an increase in revenues, while overall earnings are off 1% from the same period last year.

This morning’s employment situation report showed robust growth in the labor market.  October saw 271,000 jobs created with the unemployment rate falling to 5%.  Inflation remains muted while the housing and auto engines of this economy are strong.

Cyclically, we are entering the “sweet spot” for the market; the November through April period is historically the best six trading months, with end-of-year window dressing, stock buybacks and new money searching for yield supporting prices.

It’s good every once and a while to step back and get a different perspective. From my perspective things look good, almost like August never happened. And I’m glad that, while I stepped away, I did not sell in May.














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