Violence has escalated in the Middle East. Russian troops have crossed the Ukrainian border. Great Britain raised its terror alert for the first time since 2011. Naturally you’d expect the stock market to hit new all-time highs. Right? No, it’s actually counter-intuitive. But it’s real. Stocks have risen in the face of great skepticism. To say that the US Stock Market has been resilient in the face of threatening pressures over the last 5 years is a complete understatement. Demand for US assets from around the globe is strong. Money has to flow somewhere, and it continues to flow into America.
It’s been a great run for both stocks and bonds in 2014. Near-term we have put our defensive action plan in place. The elasticity of the Market seems a bit stretched, but it keeps pushing higher.
Historically, September is the worst month of the year for the Market. Volume has been very low, which does not confirm the underlying strength of the recent gains. We study the Market, both fundamentally and technically, and are seeing many cross- currents. Central Banks around the globe, from Washington to Brussels to Tokyo, are trying to keep the global economy stable and promote growth. It’s working quite well in some regions, while others are under heavy debate. The US is as healthy as any other nation economically.
Interest rates have fallen, and are near historic lows. Crude prices have also fallen, which is interesting considering the threats the Middle East and Russia pose as major oil and gas producers. One-third of Russian energy goes to Europe. Demand will increase in the winter for heating needs. Putin knows this. Time will tell how these dynamics play out and we will act accordingly. An increase in US supply of energy has decreased demand for overseas oil and helped keep prices lower. Regardless, lower oil means cheaper gas and cheaper gas means less money at the pump and more money in the pocket to spend elsewhere. Low rates and cheaper gas is great for American consumers. There will be many cars on the road this weekend.
Happy Labor Day! Have a great weekend. Barbecues will be active. Americans will be celebrating Summer’s last hurrah. We will be back dark and early on Tuesday.
By: Mike Frazier