Saturday, September 17, 2016

MAD Weekly Review 9/17/16

"Sell In May and Go Away" - Anonymous

That saying above has been around on Wall Street for as long as most people can remember. As it looks right now it should be "Sell In September and Go Away".  But there is a problem if you followed that wisdom like Jeff Gundlach would have wanted you too here. If you sold in May and went away this year you would have missed out on the S&P's 5% gain from May 2 - August 31st. If you were shooting for an 8% expected annual return that's 62.5% of the move in 4 months, which isn't even including dividends the index paid so you missed out on even more cash.

September has been off to a rocky start no doubt.  The reality though is the index is only down 1.5%!!! That's a drop in the bucket and nowhere near the much feared "BEAR MARKET" territory.  The market is feeling a lot of
uncertainty right now among participants.  With the looming Fed and BOJ meetings next week, and less than two months away from US elections there is a lot of anxiety that started to build up.

There was some noteworthy company news this week, and part of last.  Apple(AAPL) stock decided to take off and ended up adding over $50 billion worth of market cap this week. Then it was uncovered that Wells Fargo employees were bilking customers with illegal sales practices. The result? A mere $185 million fine, and the company fired 5,300 employees.  Why this wasn't uncovered sooner is astonishing and unacceptable. Then we received word the DOJ is asking Deutsche Bank to fork over another $14 billion to settle it's mortgage fraud suit. Although that last one sounds more like extortion on the government's end, it reinforces why I believe you can't trust the big banks. If you haven't read that one you should take a look.

We received a batch of economic data, most of which I detailed yesterday.  CPI data has finally started to come in a little stronger. Most of this summer was "wait and see" to ascertain if prices have started to really gain steam.  It looks like that's the case for the most part. The large underlying problem has been the continued deflationary effects from a strong dollar and subsequent low energy prices.  That's put a lid on prices for awhile now. Now we can see there is a decent trend of upward percentage gains. The indexed chart below though is a bit deceiving. While prices have been rising overall since 2012, the increases are at a level below what the Fed would like them to be rising at.

On the flip side Industrial Production slowed.  It's concerning since the numbers have tailed off since 2014, but have seen a nice uptick since March.  While IP is a smaller chunk of the economy it still serves as a tailwind to other sectors.  This drop is coming at a precarious time as the Fed decides where interest rates are heading. That alone as we all know is putting a lot of nerves on edge considering the global implications their decision has.

Coupled with some weaker than expected Retailer Sales(-0.3%) and it's a nice little cocktail of confusion. What most people don't realize is that while the economy has felt rocky here, it's been even rockier in other large global markets.  The fear of a recession and political instability has been pretty high almost all year.

Now for the Fed meeting. Right now the market sees a 12% probability rates will go up next week. I said plenty of times that September will be the last time the Fed could raise rates without as much fear of looking political. This number has jumped all over the place in September as a slew of Fed Presidents gave speeches. If the Fed doesn't raise rates then I see the speeches given as tests to see how the market is going to react to higher rates, and if anything they want to convey the message long enough in advance to avoid shocking the market. Either way I could still see a hike this meeting, but it's increasingly looking like December will be the month with 45% probability.

The BOJ also meets and we'll have to see if they plan on keeping their current program on course, or expanding. The BOJ is the only major central bank that's not only buying bonds of all types, but also equity market ETF's.  I think any further expansion in policy will be seen as a lack of confidence in the economy. But with how markets work it's tough to gauge the reaction as I can easily see an up or down move on the news. The Yen has been on a tear all summer as it's strengthened to 100-103 yen vs the dollar.  The 100 level has been tough for the currency to breakthrough and this could be the catalyst.

Overall expect more volatility in your holdings next week.  The trend up is still intact so don't make any rash decisions.  Enjoy the last week of summer as autumn approaches. This is a really busy week for me. Posting will be get lighter as the week progresses, and I won't publish a weekly review. I will be on Topstep Trader Wednesday morning at 11am for my Investors Corner so check that out if you can. Sorry but I just wont have time as I prepare for an extremely busy weekend when I'll be marrying the love of my life!!!

IndexStarted WeekEnded WeekChange% ChangeYTD %
S&P 5002127.812139.1111.300.54.7
Russell 2000

Have a great weekend everyone!

The MAD Consultant

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