The weekend couldn’t come fast enough for investors. It’s been a while since we’ve experienced a 2-week session like this one. This continues to be the worst start for the US Stock Market ever. I’m not going to sugar coat it, this was an ugly week. The DOW was down over 500 points at the lows on Friday morning, but found some support where buyers stepped in and seller’s stopped selling. Psychologically, it was nice to see the DOW rally off the lows. A major influence in today’s trading was options expiration. That created a substantial increase in volume. The early declines had traders racing to replace their hedges ahead of the holiday weekend where international economic and/or geopolitical news could come. It was one of the busiest options expiration session in months.
The issues that the Market is concerned about are mostly overseas. But not all of them. Earnings Season just began, and the early indication is not great. The strong US Dollar is putting some pressure on revenues and profits. That was expected and it’s happening. The Fed finds themselves in a difficult spot with a questionable tighter monetary policy underway, while the rest of the world stays loose. There’s also a great deal of uncertainty as to who will be in the White House in 2017. The US is still by far the safest and most stable Market around the globe. The Market is just looking for fresh clues that things remain on solid footing. We know all too well, the Market hates uncertainty.
It was a great week for the Bond Market. Interest rates continue to slide not rise in 2016. You won’t see the media hyping Bonds. It doesn’t sell headlines. The Bond Market is a nice place to hang out while we go through healthy corrections. Heavy cash positions help too. We’re in good shape here.
Next week will see China’s Q4 GDP report. Expectations are officially just under 7% growth. The Market seems to be pricing in something worse. We think not only will the number be acceptable to the Market, but the likelihood of the Chinese government announcing another round of economic stimulus over the weekend is high. That would send things higher. We’ll also get another round of earnings. Expectations have been lowered so much that less bad news could be viewed as good.
We have reduced some of our Market hedges during the decline. This swift and violent selloff has gone a long way to correct the excesses in our minds. Though we expect this turbulence to continue a while longer, we are seeing some really attractive buying opportunities. To be clear, we don’t see the end of this correction quite yet. We are still in defense mode, but our buy list is growing. Stay tuned.
Lastly, we are excited to announce that our Bedell Frazier family has grown. Owen Michael Harris was born on Thursday. Both mommy and baby are doing great. Daddy is already thinking about saving for college and 14 month old brother Hudson is trying to figure out what this all means. It’s life and it’s really great stuff. Congratulations Harris family!
Have a nice weekend. We’ll be back, dark and early on Tuesday.