Markets are experiencing serious Short Term Optimism & Long Term Questions.
Financial markets gave the Federal Reserve a standing ovation last week. At least, that was Barron’s interpretation. What did the Fed do to deserve it?
“…the Fed did what everyone expected, signaling that it could raise interest rates at any meeting starting in June. Yet, Yellen and team still found a way to assure the market that it wouldn’t do anything rash, insisting that the labor market would need to strengthen further, and that inflation would have to be heading for its 2 percent target before they make a move. Even then, the projected path of interest-rate hikes would be slow and steady – and unlikely to undermine the market.”
Stock markets in the United States weren’t the only ones heading toward, or surpassing, new highs. The Fed’s reassurances about the pace at which it would normalize monetary policy pushed markets across the Eurozone higher, too. Reuters reported global investors were feeling confident a weaker euro could goose the region’s economy.
There is some optimism about shorter-term market potential. Experts cited by Barron’s suggested the chance for a stock “melt-up,” which would lift the Standard & Poor’s 500 Index (S&P 500) higher, were pretty good.
However, others believe the longer-term outlook for stocks, as a whole, may temper investors’ enthusiasm. Barron’s explained earnings growth for the S&P 500 is well below its 30-year average, dividend yields are well below their 20-year average, and the index’s valuation is “so high that it is projected to subtract 2.6 percent annualized from returns. Put it together and investors are likely to earn just 0.4 percent after inflation.”
One thing is for sure: It’s awfully difficult to predict the future with any accuracy. Barron’s warned about the quirks of market forecasts, offering an example from a decade ago. “In January 2005, expected returns were just 0.4 percent, yet the S&P 500 gained 5.6 percent annualized during the next 10 years.”
Data as of 3/20/15 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 (Domestic Stocks) |
2.7% |
2.4% |
12.6% |
14.5% |
12.6% |
5.9% |
| 10-year Treasury Note (Yield Only) |
1.9 |
NA |
2.8 |
2.4 |
3.7 |
4.5 |
| Gold (per ounce) |
2.7 |
-1.4 |
-10.8 |
-10.6 |
1.5 |
10.6 |
| Bloomberg Commodity Index |
2.0 |
-4.6 |
-25.3 |
-11.7 |
-5.5 |
-4.8 |
| DJ Equity All REIT Total Return Index |
5.4 |
6.8 |
28.4 |
15.3 |
15.8 |
9.7 |
S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in this index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* “Short Term Optimism & Long Term Questions”
Sources:
http://online.barrons.com/articles/time-to-bail-on-the-market-1426895825?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_Barrons-Time_to_Bail_on_the_Market-Footnote_1.pdf)
http://online.barrons.com/articles/SB52018153252431963983004580522151660304116?mod=trending_now_5 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_Barrons-Fed_Still_Playing_a_Waiting_Game-Footnote_2.pdf)
http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_hpp (Click on U.S. & Intl Recaps, “The Fed throws its weight,” scroll down to “Global Stock Market Recap” chart) (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_Barrons-Global_Stock-Market_Recap-Footnote_3.pdf)
http://www.reuters.com/article/2015/03/20/markets-stocks-europe-idUSL6N0WM4AD20150320
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