Recovery—For How Long?

 

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Yesterday, the U.S. stock markets went up 2.39%, the highest one-day return in a month.  Analysts attributed the rise to a variety of economic news that suggested that the American economy is not, after all, plunging into recession.  The buoyant mood among investors may not last, but for many, it’s a welcome sign that things may not be as gloomy as they seemed just a month ago.

In fact, the S&P 500 only dropped about 12%, from 2078.36 at the end of December 2015 to the bottom of 1829.08 on February 11—despite widespread predictions of a 20% bear market.  Since then, it has risen on shaky legs back to more than 1978, just 100 points from breaking even on the year.  Two more days like yesterday would erase nearly all of the damage in 2016.

The good economic news involved construction spending, which reached its highest level since 2007.  Oil prices were also gaining ground, although it’s hard to see why the average American would find reason to cheer about that.  In addition, new orders and inventories stabilized in the manufacturing sector, after experiencing downturns in the last quarter of 2015.  Other factors include the possibility that U.S. stock investors may finally have decided that declines in the Chinese markets are not going to directly affect the value of American-based businesses.

None of this means that we know what will happen next.  Neither we nor any of the pundits you see on the financial news have any idea whether that long-awaited 20% decline will materialize, or the markets will continue to recover and we’ll all look back on February 11 prices as a great time to buy.  But it’s worth reflecting on how unexpected this latest rally has been at a time when it seemed that all the news pointed to more pain and decline.  Anybody who believed the pundits and retreated to the sidelines after the January selloff is now sitting on losses and wondering whether to jump in now and hope the gains continue, or wait and hope for another downturn, and risk losing even more ground if this turns out to be a long-term rally.

We can never see the next turn in the market roller coaster, but long-term, the markets seem to operate under the opposite of gravity.  You and I know with some degree of certainty in which direction the next 100% market move will be, even if we can’t pinpoint when or where.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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The stock market is over China

The stock market is over China. On Monday morning, US stocks were set to open fractionally higher after stocks in China fell about 3% overnight. And while our new era of the world’s major economic force right now: negative interest rates, a divergence in major central bank action, and ever-declining expectations for global growth may still have markets on edge, US stocks are done reacting to this news.

U.S. Stocks Rally With Emerging-Market Assets as Crude Tops $34

U.S. stocks rallied to a seven-week high after data indicated manufacturing in the world’s largest economy may be stabilizing, while optimism that central banks from Asia to Europe will add to stimulus supported emerging-market currencies and commodities.

Wall St surges as data points to economic recovery

“Things were never as bad as we thought they were and now we’re realizing it,” said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Massachusetts. The S&P 500 was up 29.8 points, or 1.54 percent, at 1,962.03 and the Nasdaq Composite index was up 85.64 points, or 1.88 percent, at 4,643.59.

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