August 12 2016 Market Minute

August 12, 2016

Trifecta! The Dow Jones Industrials, ‘18,614’, SP 500, ‘2,185’, and NASDAQ Composite, ‘5,228’, all closed at new highs this week (Thursday). Global Sovereign Bond Yields continue to be just off record lows, excluding British Gilts which hit new record lows. Oil had its largest weekly rise, +$3 to $45, in over three months.This was the first time since December 1999 that all three indices had record high closes. Not that the past is any indication of the future, these indices were then consecutively down the following three years, 2001, 2002, 2003. Some smaller Equity Indices like Philippines, New Zealand, Indonesia, and Australia are near all time highs too. No other major Equity Indices (Europe, Asia, Latin America) were making, or are near all time highs.

A couple esoteric explanations for these new highs could be the following:

  1. The SCB’s (Super Central Banks) of the world have instilled an insurmountable level of confidence in to the market in to their ability to
  2. prevent a recession or any other undesired economic event.
  3. Foreign Investment in to the US Fixed Income Market, the Largest and Most Liquid Bond Market in the world, seeking higher yields is now being followed by more and more Foreign Investment in to the Largest and Most Liquid Stock Market in the world.

Here are a couple traditional explanations for new highs in US Equity Markets.

  1. US GDP Growth is accelerating and this increase is contributing to Company Earnings Growth and Higher Earnings Growth Estimates going forward.
  2. US Citizens are getting more optimistic about their Economic Future and are adding more and more money to US Equity Markets, thus creating a Liquidity Driven Market from Domestic Demand.

10 Year British Sovereign Bonds (Gilts) dropped to .54%. Still a good deal compared to France’s .133%, Germany’s (-­‐0.095%), and Japan’s (-­‐0.107). US 10 Year Treasuries yield 1.57%, still off their record low of 1.33% back in July 2016.Oil broke its recent downward trend this week by rebounding back above $45 on OPEC Meeting rumors. This reminds me of an Old Wall Street saying, “Buy the Rumor Sell the News”. This term applies to just about anything, not just Oil. See my MM July 29 2016 for more of my insight in to the Oil Market.Finally, the WSJ this week had an article noting that perhaps ‘negative rates’ are actually inducing residents in Japan and Germany to spend less and save more. Their logic is that ‘negative rates’ are worrying people due to the concept itself being so unusual. This increased concern is prompting residents to save more and more in anticipation of their individual economic circumstances changing.

Or at least needing to save more given they are not getting a positive return on their savings and thus must save more to have the same amount in the future. This may be just another example of the unforeseen and unintended consequences of a Negative Interest Rate Policy (NIRP) by the BOJ and ECB.

Source: Bloomberg NewsWSJThompson One Analytics

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