There is a lot going on with the markets and there is a great deal of conflicting data. Last week consumer confidence came in better than expected. Then, right after that, oil went down. When the price went up, oil rigs came back on line driving supply up. Then oil traded down and created market uncertainty.
Is the market going up or has it peaked?
We are at a tipping point with the markets. Is the market going up or has it peaked? The catalyst could be the Fed as it has been a “Fed’s Market” for the past few years. In this time the markets have ignored the fundamentals and followed the Fed as they raised or lowered interest rates. If the Fed comes out with dovish statements, we could see this market move higher. Low interest rates are like free money and that seems to be the market catalyst lately.
The Fed has the power to cause the market to go higher
On the chart below you can see how the S&P 500 keeps hitting up against these highs. While the market has become more expensive, the Fed could cause the markets to go up this week or in July. It all depends on how they communicate their next move. We believe the Fed is on borrowed time and that the markets will catch up at some point. For now, the Fed has the power to make the markets go higher.
Uncertainty where government and markets intersect
All eyes will turn next towards the Brexit. On June 23rd Great Britain will vote on whether or not to exit the European Union. This is another great example how market uncertainty can be created where government and markets intersect. This vote will happen ten days after the Fed speaks about interest rates and it just adds to the uncertainty.
Great Britain could be leaving the European Union
Friday a poll came out, stating for the first time, that there was more of a likelihood that Britain would leave rather than stay in the European Union. Up until this poll it looked like Britain would be staying in the EU. British companies and businesses are trying to determine the cost of regulations in the combined market. If it’s low, they will vote to stay. If it’s high, it’s likely they will vote to leave. This creates uncertainty and the markets do not know how to price that in.
Uncertainty hurts your portfolio
It’s clear to us that the markets have not priced in the possibility of Great Britain leaving the EU leaving us all to keep asking, “Is the market going up?”. This creates uncertainty in the markets and hurts your portfolio. We are looking for solid momentum in the markets and so far we have not seen it. The markets seem to run up against uncertainty every time we think we are reaching escape velocity and that seems to be what we are experiencing now.
This week will reveal a great deal. Adding to all we have discussed, we will see the numbers on small business confidence and retail sales. Wednesday the Fed speaks and we will get a look at inflation.
We hope you have a good week. Please send us your comments and questions.
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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.
Economic forecasts set forth in this presentation may not develop as predicted.
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