Posts Tagged ‘ market pullback ’

China Slowdown Will Plague Markets For Years

January 31, 2016
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China Slowdown Will Plague Markets For Years

What a start to the year. CJF’s contrarian prediction of 1,860 on the S&P came to be on January 20th. Subsequently, the market rallied strongly on the hint of more quantitative easing out of the ECB, and the adoption of negative interest rates by the Bank of Japan. Any doubts that 2016 will be a volatile, and difficult year, should now be erased. After a tumultuous January for investing, a period when seasonality and investment inflows are supposed to support markets, CJF is stepping back to assess big picture dynamics for the global economy and the overall investment environment. At risk of being overly obvious: Something is not quite right with the global economy In the seventh year of recovery since the financial crisis, Brazil is in recession, Russia...

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Global Growth Scare + High Valuations = Bear Market Dynamics

September 29, 2015
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Global Growth Scare + High Valuations = Bear Market Dynamics

It’s been a difficult market since the dog days of summer. After 10-months of exceptionally low volatility, a fierce downdraft set in during mid-August. Lower stock prices, and volatility, will persist, simply because the conditions to go right back to the old dynamic aren’t in place. There isn’t enough global growth to support stock prices at high valuations. Full stop. Investors got complacent, extrapolating higher trends in stocks price as growth around the world slowed; a bad combination. For perspective, the market (S&P 500) got close to 18x forward (1-year ahead) earnings at the high of 2,131. An 18x multiple represents an incredible move from the 12x multiple the market achieved during most of 2011. QE set in motion exceptionally low interest rates and a stock-market re-rating. The ability...

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Emerging Market Doldrums

August 26, 2015
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Emerging Market Doldrums

Not out of the woods yet – no way. The world has changed in the past week, and unmistakably, extreme volatility (mostly of the down kind) is back within financial markets. The potential of Fed rate hike cycle, in the not too distant future, is wreaking havoc. An unintended consequences of the extended period of ZIRP (2011-now) is the degree to which the rest of world, particularly EM, depend on it. Market lurches with random gaps higher and sudden sell-offs occur daily since China’s FX policy shift and highlight the fragility of financial markets. The overarching issue for EM can be reduced to capital flows and structural reforms. The 2015 circus act out of Greece/EU, in hindsight, deflected attention from the coming EM storm/crisis. With Greece now “fixed” EM...

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Risk-reduction driven market corrections are healthy; this one presents opportunities

April 14, 2014
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Risk-reduction driven market corrections are healthy; this one presents opportunities

The pullback in the market should not be a surprise. The real surprise is the extent of the market’s ascent over the past 18-months, without a single significant draw-down. Corrections are normal during the course of a bull market, and aid in accomplishing a number of items: building the wall of worry; an important source of future buying activity, stocks stop rising which bides time; earnings and cash flow growth can catch up to stock prices, and most obviously improving valuations and avoiding bubble-like conditions. There are a few types of corrections, all with different implications in terms of the correct response. Fortunately, for investors today, the current correction, although sure to impose short-term losses (and potentially heavy ones) is benign for longer-term oriented investors. 1) Corrections before a...

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