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A Note From Jeff Ivory

Last week equity market volatility was very frustrating for many investors, with major US indices’ trading wildly throughout the week.  The most notable movements came on Thursday and Friday, with Thursday’s declines blamed on the European Central Bank’s Mario Draghi and his speech. Investors were dissappointed and hoping for more “central bank stimulus.” Friday’s equity advance was driven by the reported “robust” US jobs report, increased expectations the Fed will start raising interest rates in December (which is now good news?), and contradictory comments from ECB President Draghi. This came just 1 day after the ECB’s decision disappointed investors and dropped the US markets 2%, and he stated “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate.”  Whatever that means. 

So, some data and “jawboning” from the global central bankers allowed stocks to charge higher on Friday, erasing Thursday’s retreat.  It is notable that average hourly earnings slowed to a 0.2% rise from 0.4% in October.  Even so, the jobs report was sufficient to clear the way for the Fed to take the first step on its normalization path at this month’s policy meeting. According to CME Group, Fed fund futures point to 79% odds of a rate hike this month and about 50/50 for the second by March.  My take?  We’ll see.  I’m not sure the 21% betting against a rate hike won’t be proven correct.  Wait and see….wait and see.

As the year draws to a close, investors prepare for the last stretch in 2015. The year has been a mixed one, and thus far little was gained that was kept, in terms of price appreciation for the Dow Jones Industrial Average or the S&P 500 stocks.  Even less was given in terms of breaks for investors weary of dealing with issues that persisted throughout the year and included: a persistently strong dollar, anemic multinational earnings, China’s currency devaluation, uneven economic growth from quarter to quarter stateside, the first year since 2009 when S&P 500 earnings and revenue fell for two quarters sequentially, along with challenges to growth outside the US.

Oil and other commodity prices continued their decline from last year, and this has impacted earnings across benchmarks and sectors (centered on Energy, Materials and Industrials), raising worries about global growth and feeding pockets of geopolitical instability around the world.

The fact that the weakness in revenue and earnings in Q3 is concentrated in Energy has likely made 2015’s Q3 earnings season results more digestible to the market than they might have been otherwise. FactSet data indicated last week that more companies beat earnings estimates in the third quarter while fewer companies beat revenue estimates. 

We remain disciplined with regard to risk management in equities and other risky assets in this environment. As resilient as the advance out of the August lows has been, there have been many red flags and lots of negative structural developments that keep us cautious as we struggle to try and participate in a seasonal strong year-end bullish bias, while respecting the risk associated with the narrow, poor participation rally in stocks.  Our models are weighted to respect price levels and generally when we see an environment like the one we are in now we get “whipsawed” as volatility increases and the markets prepare to enter a potential secular change in trend.  We have to remain disciplined and adhere to our risk management strategy more than ever in a market dominated by high frequency traders that can take the averages down double digits rather swiftly.  Therefore, we will continue our disciplined approach to risk management and reduce exposure if conditions continue to deteriorate and the markets fail to hold its recent gains with any authority.  

All my best for the holidays.  I hope you all have a wonderful time with friends and family.  And, also, please do not forget…..GO GREEN!

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.


Categories: Industry Ideas, The Market

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