INSIGHTS
JAN
26
WEEK AHEAD...
The past week has definitely put investors on edge and after having seen markets reverse course suddenly, it makes you wonder.
You wonder if this is a natural pullback, one we see periodically, that gives people an opportunity to reenter the market they might have missed?
You wonder if this is something more serious. A correction that begins on some bad news and then snowballs into an event that makes you question, what is going on?
Or you can wonder, is this the soft correction we are overdue for?
We feel pretty strongly that this is not the beginning of some catastrophic market-moving event. For several reasons:
The economy in the US is still rebounding, still growing at a slow rate. Still adding jobs. Companies are still reporting solid profits. The government has gotten its act together for the most part.
So, worrying about a collapse in equities isn’t warranted.
Granted, there are some dicey currency issues in the emerging markets but we have seen some of this before and it becomes a major local issue with limited impact on major economies. Dealing with a slowing Chinese economy and the situation there has much more profound consequences. This will play out over the next 3 to 6 months and could possibly reshape markets. We will keep an eye on it but we think this has a longer term and the immediate impact will be small.
As far as a correction that is overdue, we feel it’s very possible we are in the beginning phases of that correction. However, normal corrections have some characteristics that are missing. Namely consecutive lower markets with increasing volumes. We could very well see that in the coming weeks and that would be a sign of a true correction and a possible incredible buying opportunity. Another thing we will keep a very close eye on.
We do feel that this is a normal pullback in stocks. These pullbacks happen all the time and they are a natural course of events. This particular pullback has a little more price strength than others mainly because of where the market is. We were trading off all-time highs and the lofty market markets for an easy target of a strong pullback.
The earnings season hasn’t ruptured or hemorrhaged and the expected GDP numbers this week will confirm that. Corporations are still sitting on cash and with a better environment in Washington; we do expect some of these companies to start expanding again.
One thing we do want to keep an eye on: We have gotten to where we are with some pretty good leadership from the financials and technology sectors. We are loosing that leadership and that could make for a soft selloff or at the very least a narrow band for equities.
This week we will be waiting again for the Fed to speak and give us the scoop on their tapering. With the data pointing to a slightly better economy than five months ago we will go with keeping the tapering level at this level and we think they will revisit it next month and determine if another reduction is warranted.
So the status quo and away we go. That will add some strength to the markets and your pullback will be a distant memory.
There will be a slew of earnings this week and housing numbers from Case Shiller. The revised GDP will look closer to 3.5%. The jobless claims will be small decrease and we believe that is to be expected at this time of year.
One thing that isn’t talked about much but really should be watched is consumer sentiment and consumer confidence. Without strength here nothing else matters.
We expect it to be on the low side. This will be a very volatile week and remember as January goes, so goes the rest of the year. We think this will be one of those times were the January effect does not work.
You wonder if this is a natural pullback, one we see periodically, that gives people an opportunity to reenter the market they might have missed?
You wonder if this is something more serious. A correction that begins on some bad news and then snowballs into an event that makes you question, what is going on?
Or you can wonder, is this the soft correction we are overdue for?
We feel pretty strongly that this is not the beginning of some catastrophic market-moving event. For several reasons:
The economy in the US is still rebounding, still growing at a slow rate. Still adding jobs. Companies are still reporting solid profits. The government has gotten its act together for the most part.
So, worrying about a collapse in equities isn’t warranted.
Granted, there are some dicey currency issues in the emerging markets but we have seen some of this before and it becomes a major local issue with limited impact on major economies. Dealing with a slowing Chinese economy and the situation there has much more profound consequences. This will play out over the next 3 to 6 months and could possibly reshape markets. We will keep an eye on it but we think this has a longer term and the immediate impact will be small.
As far as a correction that is overdue, we feel it’s very possible we are in the beginning phases of that correction. However, normal corrections have some characteristics that are missing. Namely consecutive lower markets with increasing volumes. We could very well see that in the coming weeks and that would be a sign of a true correction and a possible incredible buying opportunity. Another thing we will keep a very close eye on.
We do feel that this is a normal pullback in stocks. These pullbacks happen all the time and they are a natural course of events. This particular pullback has a little more price strength than others mainly because of where the market is. We were trading off all-time highs and the lofty market markets for an easy target of a strong pullback.
The earnings season hasn’t ruptured or hemorrhaged and the expected GDP numbers this week will confirm that. Corporations are still sitting on cash and with a better environment in Washington; we do expect some of these companies to start expanding again.
One thing we do want to keep an eye on: We have gotten to where we are with some pretty good leadership from the financials and technology sectors. We are loosing that leadership and that could make for a soft selloff or at the very least a narrow band for equities.
This week we will be waiting again for the Fed to speak and give us the scoop on their tapering. With the data pointing to a slightly better economy than five months ago we will go with keeping the tapering level at this level and we think they will revisit it next month and determine if another reduction is warranted.
So the status quo and away we go. That will add some strength to the markets and your pullback will be a distant memory.
There will be a slew of earnings this week and housing numbers from Case Shiller. The revised GDP will look closer to 3.5%. The jobless claims will be small decrease and we believe that is to be expected at this time of year.
One thing that isn’t talked about much but really should be watched is consumer sentiment and consumer confidence. Without strength here nothing else matters.
We expect it to be on the low side. This will be a very volatile week and remember as January goes, so goes the rest of the year. We think this will be one of those times were the January effect does not work.