Weekly Economic & Market Update 11/23/2015

Week in Review

Global equity markets moved higher this past week in anticipation of the US Federal Reserve’s release of the minutes from its October Federal Open Market Committee (FOMC) meeting. Through Wednesday of this past week, global equity markets surged higher as investors anticipated a soft stance on the future of interest rate increases. In the end, the October FOMC minutes (coupled with the previous week’s regional FED president’s comments) showed the diverse opinions on rate increases. Additionally, just as in politics, gridlock is taken as a positive in regard to the future of interest rate movements as it lends to slow movements.

We are going to shift focus to US equity markets for a moment and discuss some observations that have been made in both internal and client meetings at Lighthouse.

Questions have arisen about what appears to be generally weak stock prices, yet positive returns on the S&P 500 Index. Many clients and financial professionals look to the S&P 500 index to determine the mood of the US equity markets. Here at Lighthouse, we do not put significant importance on any one equity index for a number of reasons. To be specific though, the current environment is a good example of why stock market indexes are often a false indicator of true stock market performance and often lead investors to take excessive risk.

Consider that the S&P 500 in 2015, through this past Friday (11/20/2015) is up 1.47%. If we include dividends paid by S&P 500 companies, the index is up 3.39% in the same period. What is hidden in the S&P 500 returns for the year is that much of the performance for 2015 is being driven by just four stocks out of the 500. The stocks in question are Google, Facebook, Netflix and Amazon. When these four stocks are removed from the S&P 500 index, the results are outlined in the chart below:

S&P 500 Top Stocks 11.23.15So, as you can see, without just these four companies’ contributions, the index would be negative on the year. It’s imperative to understand both the underlying details of what drives markets and also the broad indexes that are dependent upon the broad markets.

Getting Technical with Market Charts

In this section we present charts of the S&P 500 Stock Index and the US Bond Market Index relative to their 50 day (blue line) and 200 day (red line) moving averages. In addition, we have added the blue shaded area which represents the recent trading channel. The 50 and 200 day moving averages are widely followed market trend indicators that provide a general picture of the health of the broad indexes.

Chart 1 – S&P 500

SPX 11.23.15

Chart 2 – Aggregate Bonds

AKG 11.23.15

Securities are offered through First Allied Securities, Inc. (FASI), a registered Broker Dealer, Member FINRA/SIPC. Advisory Services offered through Lighthouse Financial Advisors, Inc., a Registered Investment Advisor dba Lighthouse Wealth Management (LWM). Lighthouse Financial Advisors, Inc. is not a subsidiary or control affiliate of FASI.

Disclaimer – Information contained herein is taken from sources believed to be reliable, but cannot be guaranteed as to its accuracy. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. The Standard and Poors 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Contact your investment professional to discuss suitability for your particular circumstances. This article does not constitute an offer of sales of any securities. Securities trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Lighthouse Financial Advisors, Inc., dba Lighthouse Wealth Management, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.