After a long lethargic flat-lined Capital Market of 2017, things have finally changed, and we need to begin to get used to more normal Capital Markets.
What follows are details of what the Capital Markets have done over the last few days (yes only days) … what we should expect moving forward, along with a review of similar historical movement. Given a future that Rhymes with the past, the most important point we want to get across is this —
What we want everyone to understand is it is highly likely we do not just bounce right back and go to highs again quickly, so let’s have patience and set our expectations for an extended Capital Market search for the most appropriate level.
Ok, so you have the most likely scenario, here is why.
Current Capital Market Review
Suddenly the Capital Markets cared about something — and were WAY ahead of themselves, so they began going down!
We thought they might stop at our fancy trend line from our early post on this subject.
Nope …. participants pushed on past the trend line.
Participants decided the 200 Moving Day Average was where they should stop …
So we have a stopping spot, what happens next may be best seen by looking at the past for a possible rhyming future.
2016 Rhyme
The first drop was about 24 trading days followed by another 20-25 day test in a few months.
Start to finish about six months with a move all the way back to even before a second drop.
2012 Rhyme
With two hiccups during this 2012 time frame, again our weekly charts show a 2-4 months of capital market footing discovery ….
Let’s settle in for more normal, but what feels like “Rockier” times, which will likely be with us for a while.
- Economy is Good
- Global recovery is beginning
- Interest Rates are Rising but at a reasonable rate
- Consumers are feeling good
Patience will reward us!
Happy “Patience” Valentine’s day!
John A. Kvale CFA, CFP
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First Quarter 2018 Cover Letter Review
In true Groundhog like fashion, Capital Markets, after getting way ahead of themselves early in the quarter, saw their shadow only to turn, run and hide.
Included in the newsletter, which we sent early to give everyone a chance to view and remind of the tax strategies, is an article about the VIX and its reverse brother the XIV. These funny products along with the more recently noted tariff talk has been the recent excuse for capital markets to act like a bashful Groundhog.
The reality is capital markets got way ahead of themselves and needed time to rest. From our perch we would much rather them rest go sideways or even down a little bit, rather than getting WAY ahead of themselves like they did early in the quarter, only to quickly revert and likely overshoot to the downside.
Interest Rate Increase
In this most recent quarter we did just digest another small interest rate increase. Our new Federal Reserve Chairman Powell, looks to continue the gradual increase rates, slowly normalizing short term interest rates, and continuing on the path left by his predecessor Janet Yellen.
Capital Markets have a very unique way of signaling Interest rates have been raised too far called an inverted yield curve. Look for rhetoric about an inverted yield curve soon, as the historic importance and accuracy of this effect are in our crosshairs at this time.
Consumer and Earnings
With an economy that is two thirds driven by the consumer, a happy and spending consumer along with company earnings, which are beginning to digest the new tax reform, lead to a good backdrop.
As we mentioned in our Newsletters and repeatedly at street-cents, this is likely a year we will need patience, we see no change in that view at this time.
Have a great spring, talk to you in the summer!
Sincerely,
John A. Kvale CFA, CFP
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Posted in Interest Rates, Investing/Financial Planning, Market Comments, Performance Report Cover Letter, Political, Tax Related
Tagged Consumer, Cover Letter, Earnings, Interest Rates, Inverted Yield Curve, Janet Yellen, Performance Report, Powell