For many people, creating a to-do list or setting some short term goals is routine.
From my experiences, eventually the to-do list is completed or the goals are achieved. At this point in time, I have now entered a period of uncertainty… maybe even a bit lost.
It is either because I haven’t yet created my next to-do list or because I am a bit drained from the process necessary to accomplish such goals. It seems daunting to set another list of similar goals after just enduring the recent grind to get those goals accomplished.
We could also think of kids here (I don’t have any, but I was one once before). Kids want and want and then want more. If they are lucky enough to get what they want, then for them it seems as if there is nothing left—at that time.
They can’t think of what else they want. They are a bit lost. This could then lead to kicking and screaming and complaining about nothing. Why do they do this? Because they have yet to determine what else they want… they are lost.
Whatever the experience may be, we have all endured a period of time in which we have achieved something and then spent some time trying to figure out what is next. That’s the markets right now.
We’ve got everything… Yay!
Investors have been calling for many things over the past months and years. They have wanted to see inflation, they have wanted to see GDP pick up and they have wanted the Fed to exit.
We are now getting all of this… and investors are trying to figure out what they want next.
Recent GDP numbers showed 4% growth. Although likely to be revised slightly downward, the recent data shows that the slowdown from the first quarter was actually a fluke. Growth isn’t robust, but we are starting to see it pick up.
Inflation isn’t in hyperinflationary mode (which is a good thing), but we are seeing prices starting to trend higher. Since 2013, CPI (what people deem to be headline inflation) has moved up by 2.75%. Although this is still like watching paint dry, it’s at least showing that there is some upward price pressure, which is a positive.
And finally, the Fed is set to wrap up its bond buying (friendly monetary policy) program by October. They have also begun signaling that rate hikes aren’t too far away. And this Fed has shown a commitment to get back to normalized monetary policy sooner than later. Investors have been calling for this normalization within the monetary policy space for some time and now they are getting it.
So, now what?!
Well, this is what the market is asking as well. We are in that “lost” state.
We have received all of what we have wanted and now we are kicking and screaming as we try to figure out what we want next. And volatility is the way that the markets kick and scream.
Last week, the S&P dropped 2.69%. We haven’t seen this type of drop on the S&P, in one week, since we dropped 3.02% the week ending June 1st… 2012.
People want to sit back and say “see I told you the market was too hot,” but we have to see whether this is due to “hotness” or normality. Do we actually see signs of an overheating economy or an overbuying scenario within equities?
And I don’t see it yet. I think that there are definitely geopolitical issues that could startle the markets. But from a pure domestic viewpoint, I see last week’s correction more as a “looking for what to ask for next” scenario as opposed to “stuff is hitting the fan scenario.”
We have to remember that drops in the market will occur, but we have to maintain the big picture view. For instance, since that 3.02% fall in June 2012, we have seen 11 weekly drops of 1.5% or more up until last week’s 2.69% fall.
How has the S&P fared over that period? The index is up 57.71%. During this time period, we experienced our most recent kicking and screaming period in January along with a rate spike last summer.
What’s the point?
As we have said time and time again, market declines are going to occur. Sometimes they are over a week and other times they are over a month or two.
But focusing on the longer term goals and objectives will help to keep everything in perspective. And understanding the true drivers to both the ups and downs will help to understand their validity for the long haul.
And this recent fall, seems to be mere kicking and screaming by a market trying to find what to ask for next.