Tag Archives: Capital Market Comments

Updated Capital Market Thoughts, Earnings, Fear Gauge, Interest Rates

We have been very careful in communicating thoughts on the Capital Markets as there are so many unknowns, it’s impossible being extremely accurate.

At the end of the prior quarter when the markets were more like a Bucking Bronco than future economic estimators, we put out our initial thoughts as follows… which so far have been pretty spot on…

Capital Market Participants will anticipate this and begin pricing in the not only conclusion of this economic slow down but the positive affects of the very large stimulus package that has been put into place.

The above being said, we think it appropriate to update you on our thoughts on where we are, and where we may be going …

So here we go …

Earnings

In normal times earnings determine the movement of the markets. Being in slightly different times, earnings are, and will be bad for the current and likely next quarter. The good news, this is not surprising to anyone.

Market participants are more interested on what it will look like on the other side, as things begin to get closer to a more normal environment.

There will be bumps, there always are, but being forward looking, participants will most likely look even farther ahead than normal and ignore the immediate results.

Major Equity Indexes Worldwide

World Equity Markets… after dropping (most likely overshooting to the downside) rather quickly, moved back up as anticipation of future growth began being priced in …

5-11-20 YTD SP R2k EFA

VIX – Volatility Index – aka Fear Gauge

A few years ago, on December 20, 2017, we commented on the record breaking lows the VIX had made …

Over the last 26 years the VIX has registered a end of the day reading of 10 or less 9 times.

At the close of market just a few days ago, as you can see, 9.42.

Care to guess how many days and counting the VIX closed below 10 in 2017 SO FAR?

49 … FORTY NINE … and counting!

Fast forward to today….  in the high 20’s and low 30’s as of late… down from above 80, which was record breaking in it’s own right….

A Continued lower VIX should be good for Capital Markets.

5-11-20 VIX

Interest Rates

The FOMC, Federal Reserve Open Market Committee, correctly dropped rates to zero as extra stimulus for the situation. Eventually rates got to a lower boundary, see chart below, take notice of the increase in rates before finally settling at a lower range. This represents a dash for cash when original fears commenced. We would be surprised to see rates stay here for a decade, as they were after the great recession of 07-09.

5-12-20 Treasury 10 Year Yield

So where are we going?

Last week we mentioned here in our Edison post, we think a cure will eventually be found, and we still do.

The day those four words are hopefully spoken …

We Found a Cure!

Our lives will change back to more normal, economic growth will pick up and a giant sigh of relief will come across all of our brows as well as a cheerful day/week in capital markets and many otherwise distressed assets.

If a relapse or fear of one occurs, there will be heightened volatility and slower Economic recovery ….

Our bet is on the former rather then the latter, but as mentioned at the beginning, no one really knows.

What Do We Do?

Stick to our allocations, trust the system, and have patience.

Will there be times and items we do not like? Sure, there always are, but we will get through them together!

Oh… and remember, Stay Informed not Consumed! (Over Drama catches the most eyes!)

Have a Great “Updated Market” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
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