This week, U.S. stocks surged approximately +6% Wednesday and Thursday from earlier lows in the week, as measured by the Dow*, a total upswing of approximately 900 points. Today, in the last trading day of a volatile week, the Dow traded within a more moderate approximate100 point range and ended near breakeven at approximately 16,600.
At this level, the Dow is still approximately -9% below its record high of 18,300, attained in May, 2015. But, to put this level of 16,600 into perspective, it was only last May, 2014, that the Dow achieved it. After that, the Dow moved into the “rarified air” of 17,000, 18,000, and finally 18,300 last May. As you may recall, our opinion during the time of this “rarified trading” is that U.S. stocks were overvalued. At current levels, the Dow is not significantly over valued, but it is also not inexpensive.
As we look at the U.S. economy and around the world, we see a mix of economic positives and negatives.
While it is difficult to obtain accurate data regarding China’s economy, we do believe that growth there is slowing, and that is having a domino effect on its trading partners, especially those such as Brazil and other suppliers of commodities to China throughout the years. This morning’s Wall Street Journal offers the following, “A 54-year-old cleaner in Rio de Janeiro who must take a sweaty two-hour bus ride to work each day from the slum where she lives . . . [says], “Beef is the first to go. . . Things were so much better five years ago.”
As the “emerging markets” such as Brazil slow, another domino effect occurs: opportunities are reduced for U.S. and European companies to sell to what was a growing middle class within these “emerging markets.” As a result of these domino effects, global economic growth may slow, which can impact the companies we own, their workers, and their national economies.
In order to help combat the above-described domino effects, the U.S. Federal Reserve Board (the FED) may now contemplate raising interest rates later than the September 2015 date they had previously been considering. This factor may have been a partial driver behindthe recent rebound in the stock market.
In addition, as we’ve previously shared in our communications to you, fuel of many sorts continues to be attractively priced, which is generally positive for consumers and companies. And, the U.S. is at a point in the economic cycle where we have “room for growth,” i.e., in wages, without concerns arising over inflation.
Laurel Wealth Planning Outlook
We continue to believe that the recent stock market volatility is more likely "a correction" rather than the beginning of the next bear market, though we do expect continuing volatility. That said, prognostication is a challenging business and for that reason, we consistently recommend diversifying portfolios, per your particular needs and preferences. Diversification helps offer some protection against what we cannot predict.
Laurel Wealth Planning Potluck
Speaking of diversifying, our team here at Laurel Wealth Planning took some time for fun last evening, enjoying our annual pot luck on our wonderful office patio. Susan’s son, Logan, is the youngster at the head of the table and Saul’s daughter, Brielle, is tucked away three chairs down on the right.
As always, please do let us know your thoughts and comments.