A September Overview

The global markets stalled during the latter part of the summer, but have now reclaimed their footing.  We are continuing to get confirmation of a global economic recovery and the markets outside of the US have continued to lead us higher.  This is in drastic contrast to what we have experienced in the last five years, as the US market has pulled everyone else higher.  But, we believe it’s also a healthy trend as most non-US markets now trade at a pretty heavy discount to the US. 

There are a few trends we think bare watching as we move forward. 

  1. Do we experience technical extremes? – One of the reasons we feel this rally has legs is because we continue to see strong technical internals.  Typically, you would see the internal indicators of the market begin to deteriorate 6-9 months before a top.  We have not seen that yet.   
  2. Will volatility pick up? – One of the indexes we follow closely is called the VIX.  It’s a volatility indicator and it tells us how much variance we are experiencing in the markets.  Today, the VIX is hitting all-time lows and we have to wonder how long that can last.  In reality, the VIX is a better indicator of where/when intermediate-term corrections may come into place.  But, it is useful on a short-term basis. 

The markets are trending higher right now and we feel there is global economic justification as to why.  But, we are starting to get some short-term extremes coming into play.  So, we have a raised eyebrow as to how far we run?  We are encouraged by the global economy, but as always, we will not throw caution to the wind and will continue to monitor the markets for warning signs.  

A August Overview

The markets have stalled a bit late in the summer but, as we have been communicating for the last several months, we have been expecting a corrective phase.  It’s been well over a year since the stock market went through a normal correction and stocks have looked “tired” for the last several months.  As well, August and September tend to show poor seasonable performance.  

Moving forward, there are two economic question marks that will determine the longevity of this economic expansion in the coming quarters and years:

  1. How fast does the economy re-inflate? – Around the world, central banks have been lowering rates for years, because inflation has been low and the greatest threat we faced was deflation.  But, as we have seen in the US, rates are now on the rise.  The “pace” of those rate increases will be directly affected by inflation.  If inflation stays low, rates will rise slowly.  If inflation heats up, the central banks will be forced to raise rates faster, which would be unfavorable for stocks.  
  2. Will the global economy continue to improve? – For years, the US economy has pulled the rest of the world higher.  In reality, Europe has been in borderline recession for the last ten years.  That being said, the US economy has had to do the heavy lifting.  This year things changed.  Europe and China are growing and Japan has shown good economic numbers.  So, if countries around the world continue to support the global growth effort, this rally could become sustainable.  

Keep in mind, we have not turned bearish on the markets, we simply feel that the markets are in the process of taking a breather.  In reality, the global economies are lifting right now and earnings have been strong.  This is a very positive scenario and one we think will push markets higher over the coming years.

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