5 Minute Market Commentary – October 26, 2015

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Markets finished last week up significantly, breaking through some important resistance levels. While the past couple months presented some scares, it looks like we could be breaking out into new all-time high territory soon.

Screen Shot 2015-10-26 at 8.27.50 AM

Lesson to be learned: 10% drops are not moments to panic in. Rather, they are more often than not moments of opportunity.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There were no changes to our economic or Bull/Bear indicators this past week. They remain positive on the economic front but negative on the stock market front. Historically, this means our models think there is a higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-09-06 at 10.09.47 AM

Weekly Comments

The market drop from its May highs had a lot of us worried, myself included. But it really does look like it was just a very short and mild correction. You can see in the below chart that we broke out in a very positive way from the downtrend, including a breakout above a rising wedge pattern.

Screen Shot 2015-10-23 at 10.22.45 AM

If this is all greek to you, no worries, it is for most.  Just know this:

Everyone was worried about earnings, then companies like Microsoft and Amazon blew their estimates out of the water. Investors were worried about China, and they dropped interest rates for the 4th time this year to help pick their economy back up. And finally, investors were worried about the US Federal Reserve raising interest rates, which now looks highly un-probable.

So all the worry was for naught. At least this time around. There will certainly be a bear market in the future, perhaps the near future (as in next 12 months), but it doesn’t look to be happening now.

As investors, we should still be cautious, but cautiously optimistic. Here at FormulaFolios we are again in a bull market bias, with only modest conservative positions planned into November. This could change in the next week if the market can’t hold on to this rally, but I think it will, and our models will confirm that in the next 5 business days.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk

 

ff_wmu_v2I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Markets finished last week up significantly, especially in the asset classes that had previously experienced the sharpest losses. Per below, commodities (which were down over 40% the prior 12 months) jumped more than 5% last week.

When the markets make big gains after big losses, it’s important we not get too excited (nor nervous). I wrote this just 2 weeks ago knowing that in down markets there was a likelihood of a few pops…

That said, be prepared for some head fakes along the way. Some of the strongest jumps in the market happen in the midst of a bear market.

Screen Shot 2015-10-12 at 8.27.25 AM

Lesson to be learned: We’re not in an uptrend, nor in a downtrend, just an up and down trend.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There were no changes to our economic or Bull/Bear indicators this past week. They remain positive on the economic front but negative on the stock market front. Historically, this means our models think there is a higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-09-06 at 10.09.47 AM

Weekly Comments

There’s a great deal of irony in last week’s market rally. It was up largely because of poor economic and earnings news.

Huh?

Yes, you read that correctly. The market actually rallied because of bad news. The reason is the markets believe the worse the financial news is, the more likely the Fed is to keep interest rates low, rather than raise them as they’ve indicated most of the year.

Higher interest rates are traditionally bad for business. It makes it harder for consumers and businesses to spend money, as the cost of borrowing eats into buying power. Low rates, on the other hand, are good for business (mostly). So, if the economy is bad the Fed won’t raise rates, therefore business will be good.

The problem, however, is rates have been low for 6 years (really, really low) and business is still slowing. And, it doesn’t really matter what we do with rates here in the U.S. if other parts of the world economy are slowing down too.

All that being the case, last week was a nice victory for investors. We just need to be careful not to read into it too much. The markets were up big, but on bad news. The strongest bull markets are not built on that type of foundation. Rather, they prefer a strengthening economy with news improving at rates better than forecast.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk
Chief Investment Strategists

5 Minute Market Commentary – October 8, 2015

ff_wmu_v2Sorry this is a tad later than normal, I have been traveling for the past few days so here is the 5-Minute Market Commentary.

I am happy to present this week’s market commentary from FormulaFolio Investments.  The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Markets finished last week fairly mixed (large cap stocks, bonds, treasuries and international equities were up while small cap stocks, commodities and high yield bonds were down).  While the volatility has definitely returned to the markets we are still waiting for a clear direction as to whether we are in a uptrend or a downtrend.  The increased volatility (sometimes measured by the VIX index) has caused concern for a large number of investors, especially since the index has doubled from it’s previous averages.   As you’ll see via the chart below the Benchmark’s have not seen a great return over the past 1 week, 1 month, Year to date or the past 1 year.  Combine the lackluster market performance and the heightened volatility and investors have a few good reasons for concern.

As we mentioned last week, there will be a few head fakes along the way.  Some of the strongest jumps in the market happen in the midst of a bear market so controlling emotional investment decisions will help your overall investment  strategy.

Screen Shot 2015-10-06 at 1.54.43 PM

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).  In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull / Bear indicator we want it to be at least 67% bullish.  When those two things occur our research shows market performance is strongest and lease volatile.

There were no changes to our economic or Bull / Bear indicators this past week.  They remain positive on the economic front but negative on the stock market front.  Historically, this means our models think there is a higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-10-07 at 12.24.33 PM

Weekly Comments

Last week I asked the question “What to do from here?” and the answer is still a mixed bag.  The markets did recoup some of the losses from the previous weeks however certain indices are still showing large drawdowns.

Our portfolios are still holding onto our cash positions but have started to indicate that we may be taking advantage of some good buying opportunities very soon.  As I mentioned last week; “As investors we should not try to time the market perfectly (because that’s not possible). Rather, we should invest with a  “dimmer switch” that slowly adjusts the light down as market volatility picks up.  There will still be some losses, but they are bearable, and we’ll still be positioned well to participate in the recovery (which will happen, eventually, even though it sometimes feels like it never will.”

More to come soon.  Stay tuned.

Regards,

Phil Calandra and Jason Wenk