Week in Review
Global equity markets have limped into the New Year with varied headwinds from the US interest rate anxiety to Chinese economic weakness. Markets took the first interest rates hike in over ten years in stride at the end of 2015. But, now the issue investors are wrestling with is the uncertainty of US Federal Reserve’s (FED) path to more rate hikes, especially in the face of global economic weakness.
On the Chinese front, not only is the economy grinding slower but the Chinese central planners are struggling to keep the investing markets steady as the investors that poured in over the last five years try to leave at the same time. The attempt to transform the Chinese economy from a global export driven manufacturing economy to consumer driven economy is not going to come without pain. Many economic analysts are pointing to the current difficulties in China as the beginning of China transitioning from global exporter to a self-sustaining consumer driven economy. If this is true the questions are how much pain are the central planners willing to go through in order to change the economy and for how long?
Lastly, over the last several years there have been key correlations in the markets as to direction of markets. For years it was the expansion of the FED’s balance sheet and the equity markets. Now, it appears to be the equity markets and oil. You will note from the chart, oil is in red and the S&P 500 is in black.
Whether this correlation with oil and stocks holds going forward is questionable but there is no doubt that lower oil prices are good for the consumer and bad for job losses here in the US. Additionally, as we have pointed to, oil is now a political tool being used by Saudi Arabia (and OPEC). The politics surrounding oil and the US dollar are being watched closely by many. As always, we continue to watch markets, economies and geopolitics for stresses and opportunities.
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
Chart 2 – Aggregate Bonds
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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.