Markets Recover amid Central Bank Decisions

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

The books are just about closed on what will be remembered as one of the worst months for stocks in a very long time.

In fact, it was the worst start to a year ever for the equity markets, as a toxic cocktail of plunging crude oil prices and global growth concerns sent sellers running for the exits.

Last week, we told you about the intimate relationship between oil prices and the S&P 500. This week, that relationship continued, as oil prices got a nice boost on rumors that OPEC may start to consider cutting production. While that was just a rumor, oil prices held their bid this week, and that helped stocks hold their own during the week.

Despite stocks finishing slightly positive over the past two weeks, the month-to-date performance in 2016 has been horrendous. The table below shows the losses in all of the major market indices, oil, gold and bonds in this dreary January.

TICKER NAME MTD%
SPX S&P 500 INDEX (6.44)
INDU DOW JONES INDUS. AVG (6.73)
NDX NASDAQ 100 STOCK INDX (8.08)
EFA ISHARES MSCI EAFE ETF (6.65)
EEM ISHARES MSCI EMERGING MKT (6.28)
USO UNITED STATES OIL FUND LP (12.45)
GLD SPDR GOLD SHARES 5.23
TLT ISHARES 20+ YEAR TREASURY 5.63

The only two asset classes that captured some decent capital were the flight-to-safety plays of gold and long-term U.S. Treasury bonds. That tells you that the smart money is playing it safe, and that you should too.

Meanwhile, this week we saw more central bank maneuvering. First, we had the announcement from the Federal Reserve on interest rates Wednesday. As expected, Janet Yellen and company didn’t raise rates. They did manage to acknowledge the global equity market difficulties in January, and they put language in their statement saying as much.

Exclusive  Why PayPal Is a Good Buy, Even After Rising 75% Year to Date

What the Fed didn’t do was take off the table the possibility of a rate hike in March. In fact, the central bank still is signaling it will raise rates up to four times this year. The market only thinks the Fed is going to raise rates once this year. That means that the Fed and the market are at odds as to just how fast this rate-hike cycle is going to play out — and that could be a big source of trouble for stocks going forward.

Now, another form of central bank maneuvering this week came overnight, as the Bank of Japan lowered short-term interest rates into “negative” territory. That means that the Japanese are going to be charged to put their money in the bank.

The idea here is that people will put capital to work in the economy rather than be charged money to keep it at a bank, and that this will stimulate the economy. So far, negative interest rates in Europe haven’t stimulated the investment or the inflation desired, so I don’t have my hopes up for Japan’s economy.

Still, lower interest rates and/or more “QE” (quantitative easing) from central banks are usually bullish for the equity markets in those countries, and today we saw a nice bump in the value of Japanese stocks, as displayed here in the WisdomTree Japan Hedged Equity ETF (DXJ).

sc-2

The big question now facing investors is whether this market is going to continue down the January path, or whether we will see a rebound in the major averages as earnings season continues.

Exclusive  GLOBAL STOCK INVESTOR HOTLINE UPDATE 13

Given that the market descended into official correction territory early this month, I do think there will be some fast money sloshing around to buy up some beaten-down stocks. However, for any sustainable rally to take place we’ll have to see oil prices climb and global growth forecasts improve. We’ll also have to start see the Fed’s rate hike expectations come in line with the market’s expectations.

Will that happen? We’ll see. How will we know if that happens? We’ll see a rebound in the Fabian Plan metrics showing this market has enough strength to allow us to get back into stocks. Right now, our metrics are telling us to stay away, and they’ve been doing so since early January — before the worst of the selling shocked investors.

If you want to know what are plan is telling investors to do right now, then you need to checkout Successful ETF Investing today.

A Thought on Facts

Get your facts first, then you can distort them as you please.
— Mark Twain

Given that we are just a few days away from the first presidential primary caucuses, I thought it might be helpful to inject a little Mark Twain into the conversation. After all, nobody can distort the facts as well as politicians (regardless of party), so just remember that when you’re casting your vote this year.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

Exclusive  How To Profit From Asia's Overachiever

In case you missed it, I encourage you to read my e-letter column from last week about the role central banks are playing in the markets right now. I also invite you to comment in the space provided below.

previous article

Buying on the OTC Grey Market is a new experience for many investors. Tim McPartland from DividendYieldHunter.com has created the perfect primer for curious minds.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike Turner’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE