Last week showed a continuing strong US market, Japan declared they are in a recession, and China surprised everyone last Friday with an interest rate cut. Today we will discuss how these and other international issues can affect US markets and ultimately your portfolio.
Mistakes in evaluating a stock’s move
Think of any stock in the US market. If that stock moves one dollar, we believe there are factors that affect 75% of that move and other factors that affect 25% of it. Most investors focus on the 25% over the 75%. These factors are the individual fundamentals of the company of that stock, such as their balance sheet, how much money they are making, accounts receivable, and their income statements. The factors that cause 75% of the stock’s move are the macro factors. These include what is going on in international markets, other countries’ central banks, and what our market as a whole is doing.
How we evaluate a stock’s move
We spend 75% of our time focused on the factors that make up the 75% of a stock’s move because we think that is a more fair and balanced way to look at the risk. The media and the general public focus just on what the company is doing and not all the other factors that made the stock move. The 25% is important but at the end of the day, it’s the factors that make up the 75% that cause the stock to move.
Potential currency war
The Japanese Yen is declining which is good for Japan because their goods are cheeper to the rest of the world. While they are in a recession, their citizens are tolerant to this as long as everyone is affected equally. This mindset is a part of their culture. But this is putting pressure on Europe because now buyers are starting to buy from Japan instead of Europe. With the Euro still highly valued and the Yen depreciating, we could see a potential currency war. Ultimately, this will impact US markets and your investments.
US market overview
As Japan slipped into a recession last week they delayed an increase in their sales tax. It remains to be seen if that will have an impact. Oil prices continue to decline as the Senate rejected the Keystone Pipeline vote. We are watching to see how oil prices react to the OPEC meeting on Thanksgiving Day. Retail earnings continue to continue to be strong. As we prepare for Black Friday, the reduction in gas prices is like a tax cut which will give consumers more money to spend and help with the already good retail sales. While this is great for the US it’s a whole other story for the Middle East which is being negatively impacted by oil prices coming down and the US becoming more energy self-sufficient.
We hope you have a happy Thanksgiving. We are here all week except on Thursday for the holiday. Feel free to call or email us with your questions or concerns.
Franklin Bradford, CMT
Senior Vice President
Bobby Norman, CFP®
fi-Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. fi-Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Stock investing involves risk including potential loss of principal.