We all have our pet peeves, and if there is one thing markets do NOT like, it is uncertainty. Unfortunately, we entered 2016 with a lot of unanswered questions:
- How much has China’s growth slowed? How will the country’s slower growth affect companies and investments around the globe?
- How will the Federal Reserve’s changing monetary policy affect the U.S. economy? How many times will it raise rates during 2016? Will the Fed change course?
- Will oil prices continue to move lower? Will they move higher? How could changing oil prices affect economic growth?
- How is the sharing economy (renting rooms in a home, offering rides for a price, sharing goods like automobiles and bikes) affecting economic growth in the United States?
- How will demographics – particularly the changing ratio of working people to retired people – affect economic growth?
- How will geopolitical risks affect markets during 2016?
Amidst all of this uncertainty, the words ‘market correction’ (a drop of at least 10 percent in the value of the market) and ‘bear market’ (a drop of 20 percent or more in the value of the market) are being bandied about frequently. According to Barron’s, the Standard & Poor’s 500 Index finished last week in correction territory. So, are we headed for a bear market? That remains to be seen.
Bear markets often are accompanied by recessions, and few experts believe a recession is likely in the United States during 2016. Historically, there have been bear markets which have occurred without a recession. These have lasted, on average, for about five months. That’s far shorter than the 20-month average length of bear markets that come in tandem with recessions.
One expert cited by Barron’s commented on the market downturn, “If there’s a silver lining, it’s that the market is a lot cheaper than it was a few months ago. The S&P 500 trades at 15.9 times 12-month forward earnings forecasts…back where valuations were at the beginning of 2014. That means there are values to be had.”
|Data as of 1/15/16||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 (Domestic Stocks)||-2.2%||-8.0%||-5.6%||8.5%||7.7%||3.9%|
|Dow Jones Global ex-U.S.||-3.4||-9.3||-14.1||-4.1||-3.3||-0.7|
|10-year Treasury Note (Yield Only)||2.0||NA||1.8||1.8||3.4||4.3|
|Gold (per ounce)||-0.7||3.0||-13.1||-13.3||-4.3||7.1|
|Bloomberg Commodity Index||-4.2||-6.5||-27.8||-19.3||-14.6||-8.0|
|DJ Equity All REIT Total Return Index||-2.7||-5.6||-8.5||7.4||10.0||6.3|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.