Today we are discussing various economic issues that are holding this market back.
The State of The Affordable Healthcare Act
The burden for funding The Affordable Healthcare Act has been on owner managed businesses who are very large segment of our economy. Investors should be watching the Supreme Court case on the docket in June called King vs. Burdwell, which states that the way The Affordable Healthcare Act is being funded is unconstitutional. If this rules in favor of being unconstitutional, we believe this could be a good tailwind for owner managed businesses that a lot of people are not expecting. Furthermore, this could ignite the markets.
Interest rates are going up
Last week Janet Yellen announced that interest rates are going to go up sometime later in the year. She was not specific about an exact time frame, but she never is. Yellen sited recovering home values, a growing global economy, and an improving job situation as her reasoning for interest rates going up.
The issue of interest rates going up is very data dependent. We believe a rate hike in June is very unlikely but a possibility in September. Remember though that there is a lot of data that will come between now and then which is why we are here every day tracking it.
What has beat expectations?
Housing starts increased 20% in April which is the highest level it has been since 2007, easily beating expectations. Japan’s GDP also beat expectations growing 2.4%.
Does anyone care about Greece?
The Interior Minister of Greece stated over the weekend that they will not be paying back their loan to the IMF. The markets seemed to say, “So what, who cares,” and did not react to this news. While we look for the back page stories that will become front page stories, this is an instance where the opposite has occurred.
Short week but lots of data
While this week is short because of Memorial Day, there is a good deal of data coming out. The Durable Goods Orders numbers came out lower than expect and the Case-Shiller report shows that home prices are up, but did not meet expectations. There are other home sales reports this week as well as GDP data.
So why don’t we go to cash?
The VIX Indicator which measures volatility in the market is around 11. In 2007 and 2008 it spiked up to 40. What usually happens when it gets to this level is that the market will stay flat or drop anywhere from 2-4%. The question investors may ask is, “So, why don’t we go to cash?” We hold cash to take advantage of market opportunities and transaction costs. We believe this possible volatility is just a normal part of the markets. In other words, it rains every now and then. You don’t cancel your kids camping trip because they are predicting rain. We are watching the indicators but at this point we are not abandoning the markets.
Please keep sending us your comments and questions.
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.
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