Market Outlook
Market watchers will be keeping an eye on the Fed as it was
reported that Federal Reserve officials on Saturday took stock of a slowdown in
the global economy and said it could delay an increase in U.S. interest rates
if serious enough. Most notably, Fed Vice Chairman Stanley Fischer said the
effort to finally normalize U.S. monetary policy after years of extraordinary
stimulus may be hampered by the global outlook. The end of the month is the
next schedule FMOC meeting if the Federal Reserve starts hinting that it will
remain accommodative to the financial markets this will almost certainly boost
stocks higher into year end. The other key issue is how many companies exceed
third-quarter revenue and earnings estimates plus fourth-quarter future
guidance projections. If the Fed maintains a stimulus program and third-quarter
financial results are good this should be sufficient fuel to catapult stocks
back toward recent highs.
Stocks in major global markets closed out one of their worst
weeks of the year on Friday, with an index of global equities hitting an
eight-month low, and oil slumping to a four-year low as worries about slowing
global economic growth darkened the investment outlook. Growing risk aversion
has boosted buying in safe-haven government debt. Lipper data shows U.S.-based
taxable bond funds attracted $12.7 billion in inflows for the week ended
Wednesday, a one-week record, while U.S. equity funds saw $6.7 billion in
outflows, with most coming from exchange-traded funds. The traditional equity
sectors are being sold off as investors worry about future global economic
growth trends.
Investor Analysis
Last week we introduced the term “Octoberphobia” which is used
to describe the phenomenon of major market drops occurring during the month.
Market calamities can become a self-fulfilling prophecy, so stay on the lookout
and don’t get whipsawed if it happens.
Money managers have scrambled to reduce big bets in stocks
and other risky assets as expectations for world economic growth have shifted
in recent days. Our previous analysis reported “…Consumer staples normally strengthen in the fall…” In the updated
chart below you can see that Consumer Staples and Utilities retained their
value compared to other sectors over the past month. But whatever you do it is
prudent to avoid energy stocks as this sector continues to be decimated with no
letup in sight. Even short positions on energy stocks would be dangerous at
this point as most of the downside move may have already been gotten. Keep in
mind that ‘holding cash’ is a viable strategy. Considering current market
volatility, maintaining a high cash position is an excellent move because you
can take advantage of ‘buying the dips’ when prices stabilize.
By Gregory Clay
Investment Strategist
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