Summertime and the Livin’ is Nervous
Brexit, Oil Prices, Uncertain Fed, Slow Economy; is this a wall of worry we will climb over, market summer doldrums, or a coming storm? Anybody who says they know is someone we should not be listening to. But, let’s breathe a little, add up the positives, and see if we can get less nervous
Interest rates are low and seem to support current stock valuations under 20 times earnings on the S&P. Several industry sectors are still down 5-10% from their highs over the summer of 2015. Of course, energy and biotech are down significantly from their highs, so there seems to be some good stock values around.
As well, the Fed, in the voice of Janet Yellen, has consistently said that their interest rate decisions are data dependent, and more than one rate hike in 2016 doesn’t seem to be in the cards. Remember, they originally planned multiple rate hikes this year, but the data hasn’t supported that. Seems responsive and responsible to us. Low rates support the housing market which remains an important driver of our economy.
Corporate balance sheets are still stuffed with cash and our largest companies in most industry sectors are buying back stock, raising dividends, and looking for acquisitions. As well, we just heard the SBA is actively backing small business loans again. That can’t hurt Main Street.
The U.S. consumer is alive and well. In many ways she’s not shopping the way she used to, but cars, homes, home related purchases, travel and online sales are all doing fine. Department stores are taking it on the chin, but overall retail sales are up this year.
So, there are good things going on under the headlines. Are they enough to maintain support for stocks through the summer and into the election? Some improving economic numbers would help. Even though that would raise concerns about interest rate hikes we sense the market has already discounted much of that concern. Some campaigning on infrastructure investments would also help.
We think current conditions set us up to trade in a range defined by this year’s market highs and lows over the summer, but we’re going to have to get some economic traction if we want much upside. More economic slowing could easily take the market in the wrong direction, but let’s stay positive for now.