5 Minute Market Commentary – November 23, 2015

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 continued their Dr. Jekyl and Mr. Hyde behavior last week, posting gains in almost all asset classes and driving many indexes positive for the year. This seems to be the norm, but there are some important resistance levels the markets need to break through to create confidence to finish the year strong. More on that in the commentary at the bottom of this post.

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Lesson to be learned: One week up, one week down. Markets can do this in the short term, which is why we have to invest for the long term.

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 week. Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term future (think <18 months).

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Weekly Comments

In last weeks commentary I published a longer than normal video showing why it was important to not panic. The comparison was drawn to 2011, where markets dropped nearly 20% in just a couple months, only to rebound strongly and finish the year flat.  LINK TO VIDEO

This year hasn’t been as pronounced, but it has been similar.

Then, it was QE3 that bailed the markets out and pumped money supply further into the financial system. Today, it’s the Fed keeping rates low when many feared they would hike rates (causing investor anxiety, selling, and thus down markets).

There’s still a possibility of interest rate hikes in the near term, and when it happens, the markets probably won’t like it. But the longer that wait is the more likely the markets will grind higher. The economy isn’t its strongest, but it’s not weak either. And here in the U.S. we still have one of the strongest, if not the strongest, economies in the world. This is one of the reasons the U.S. markets have outperformed the broad world markets the past few years.

The next critical level for markets is setting new all time highs. For the S&P 500 that would mean a move above 2,030, or about 2.5% higher than current levels. If the market can do that I’d expect a strong rally and a new uptrend. It might not last forever, but as we learned in 2011, when the market gets momentum in can last for years (2012-2014 were very strong).

Until that new trend become reality, however, it’s best to stay conservative and patient. It’s not always fun when we feel like we’re missing gains, but when the risks are higher than a few percent gain, it’s wise to be wary of the risks.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk

5 Minute Market Commentary – 11/10/2015

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

US Stock markets were strong last week, which made many investors think that everything was up. Not the case though, as International stocks, commodities, and bonds were all down. In the end, while it was a strong week for US Stocks, most well balanced investors probably were closer to break even.

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Lesson to be learned: When the S&P 500 and Dow go up, it’s nice, but doesn’t mean everything goes up, nor does it matter.

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 week. Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-11-02 at 2.41.49 PM

Weekly Comments

From last week’s comments…

Our approach is simple. We stay committed to a long term plan to be optimistic when presented with data that suggests we should, and cautious when it doesn’t. Today, this means being mostly invested, while still having a close eye on key market indicators that could help warn us if the October rally was really just a head fake.

November is early, but already showing some really mixed signs. The possibility of a Fed rate hike now appears to be an actual possibility again, which is spooking some markets quite a bit. As of this writing, the Dow is down about 200 points, erasing most of last weeks gains. All told, November is just about flat after the record setting gains of October.

Accordingly, investors are confused. This is okay. What’s not okay is changing course from a long term investment plan. This doesn’t mean buy and hold through severe losses, mind you, just that investors need to pay less attention to the wild short term swing of the market, and more attention to staying on track for their long term goals.

In other words: a few percent decline is no fun, but it’s not devastating to a long term investment plan. So we should always pay close attention, but never panic.

Looking into the future, the key breakthrough I’m watching for is the S&P 500 reaching it’s previous all time highs, and if it can break through or not. I think this may happen yet in 2015, and if it reaches and fails, the market correction will likely ensue (going back down to the lows of 2015). If it reaches and breaks through, it could make for a really nice rally into early 2016.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk

5 Minute Market Commentary – November 3, 2015

ff_wmu_v2

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 were mixed last week, but still posted one of the best overall months in years. 4 years, to be precise, as it relates to US Equities. This pushes the 1 year returns back into respectable territory for most benchmarks (so long as 2-5% is respectable in your book).

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Lesson to be learned: A month or two mean very little in the long run, but sure can be annoying when they are all over the map.

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 changes to our economic or Bull/Bear indicators this past week. On the economic front, the model is slightly weaker; while on the Bull/Bear indicator the reading is stronger. Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-11-02 at 2.41.49 PM

Weekly Comments

October is now in the books, and set some records by posting the largest monthly gain in over 4 years here in the US. However, there are still some people wondering if this is just a head fake.

To understand this, we sometimes need to take a step back and look at history. You see, back in 2011 the market dropped about 15% in just a few months. There was panic that the Federal Reserve’s QE2 program would expire, the economy would slow down, rates would jump, and the (then 2 year) bull market would be over.

But then the Fed announced QE3, money supply jumped, the economy motored along, and all was well. The markets rallied and within just 2 months erased the 15% losses.

This time around is awfully similar. The Fed is not raising rates, China is lowering rates, and a few key companies posted fantastic earnings. All again is right in the world.

Except we’re not quite out of the woods. The market still hasn’t erased all of the losses, though it is close. There’s not likely going to be another stimulus plan, all the while the economy really is growing at a slower pace than recent years.

So, as an investor, what do we do?

Our approach is simple. We stay committed to a long term plan to be optimistic when presented with data that suggests we should, and cautious when it doesn’t. Today, this means being mostly invested, while still having a close eye on key market indicators that could help warn us if the October rally was really just a head fake.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk
Chief Investment Strategist