HO, HO… Uh Oh? The Santa Claus Rally Is on Thin Ice
Good day members,
The stock market continues its march forward, boldly trudging through the thick economic slush. Santa Clause will come through to give this market some desperately needed legitimacy. Black Friday! Cyber Monday! Sales galore! Cheap oil! Tons of jobs! Corporate earnings are sure to rise!
“Please consumers, hold this bag of goods” says the retailer.
“Please investors, hold this bag of goods” says the stock market.
Unfortunately, the bag of goods the stock market is selling us is full of lumps of coal.
Santa Clause cannot save stocks this year. Low gasoline prices cannot save us from the upcoming market dip. This year, good old St. Nick is skipping his stop on Wall Street and heading straight to the zoo to deliver well deserved gifts to the bear population.
Weak global growth (recession in many countries), printing presses creating more currency than ever before and the threat of rate increases on the horizon has the stock market incredibly tired, near exhaustion. It has, after all, been towing the line of recovery for years now.
When the FED says interest rates will need to be raised soon, AND inflation is just not hitting target rates, investors should worry. It’s been the threat of inflation that’s kept the market afloat, inflation that has yet to come (at least up to the standards of the FED).
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Just looking at the S&P 500 1 year chart (BELOW), you can see how tired the market is.
NO doubt we’ve been on one hell of a tear since the correction a few months back. But fundamentally, nothing has changed for the positive. Actually, GDP last rang in at 1.5%, which is worse than the previous quarter. With that looming FED hike, you can expect that soon, the market will do an about face and head lower.
Look for the S&P to test 2,020 and if it falls through, watch out for 1,990. Ideally this happens in a slow, structured manner… but remember, the stock market never works in an ideal fashion. Oh, and don’t expect Santa to come to the rescue this year…
This from our friends at Market Watch: The continued downtrend in the high-yield bond market is warning that liquidity is drying up, which could bode very badly for the stock market.
When financial markets are flooded with liquidity, investors tend to feel safer about investing in riskier, higher-yielding assets, like noninvestment grade, or “junk,” bonds, and stocks. When the flow of money slows, the appetite for risk tends to decrease as well.
That’s why many stock market watchers keep a close eye on the longer-term trends in the high-yield bond market. If money is flowing steadily into junk bonds, investors are likely to be just as willing, if not more willing, to buy equities. When money is coming out of junk bonds, like the chart below shows, many see that as a warning that investors could start selling stocks. Continue on by Clicking HERE:
Have a great week.