Friday’s market drop
Last Friday we saw a market drop as the NASDAX sank about 2.6 % and the S&P dipped about 1%. In the investing world, often a market drop is not something you should take at face value.
When is a market drop good?
Our research is showing us that this market drop could be a response to a rotation of investors moving out of growth stocks into value stocks. This type of market drop usually happens as people begin looking at the earnings of growth stock companies in anticipation of earnings season. This is an underlying positive factor that shows people are more confident in the over all direction of the economy.
Permanent temporary jobs are affecting short term interest rates
As we have been saying since the beginning of the year, the Fed is going to have a hard time predicting when to make a change in short term interest rates. Part of the reason for this difficulty is because what is going on in the job market. Most of the new jobs are temporary jobs that are becoming permanent temporary jobs. This adds more to the layers in the job numbers that is making it difficult for the Fed. We’ve seen this happen before in 2000 and 2001, but it didn’t sustain itself very long.
Many economists are predicting that this permanent temporary job environment could go on for a long period of time. This is because of underlying systemic weakness in the labor market.
What we are watching this week
One thing we have been watching is corporate share buy backs which were up 29% by the end of the first quarter. Corporate share buy backs normally parallel a bull market. This process is a value enhancement move by corporations intended to increase the value of their stock. Interestingly, the amount of per share impact that it is having is considerably less than normal. This means that the corporations are not getting as much bang for their buck.
In addition, we will continue to watch this rotation out of growth stocks into valued stocks and look for trends and impact on the markets. It is important for investors to remember that often when you see a drop in the market, as we did last Friday, it is not always as it seems. It could be a reflection that certain companies are not doing well but it could also just be an investor rotation.
Please comment below, email me here or call me should you have any questions.
Ashley Page, JD, MBA
Senior Vice President
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Ashley Page is a Senior Vice President and Wealth Consultant at Fi Plan Partners, 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.