Bear Market or Not?
We contributed to a Forbes article along with some top wall street strategists including Russ Koesterich (global chief investment strategist at Blackrock), Michael Farr (president of Farr, Miller, & Washington), and Robert R. Johnson, PhD, CFA, CAIA (president of The American College of Financial Services). The article was entitled: “Are Stocks Headed For A Bear Market?” We were asked to talk about whether we are headed for a bear market and what investors should make of the Federal Reserve’s decision to not change interest rates.
President, Daniel Beckerman, CFP®, ChFC® discussed how he views the recent correction in the stock market as a temporary downturn within a long-term bull market which began in the first quarter of 2009. He said, “this is the fourth double-digit correction since then.” We had one in 2010, then another in 2011 during the European debt crisis, and a third in 2012 during the debt ceiling issues. This time the areas of concern seem to be the slowdown in China as well as the falling commodity prices. Furthermore, there are two sectors of the stock market, energy and materials, which are already in a bear market. But many businesses, particularly the transportation companies, are enjoying the lower prices. The economic productivity and conservative banking system do not seem to indicate a long-term bear market. Valuations for the stock market are considered reasonable at this point; they are not cheap nor expensive. The forward price to earnings ratio for the S&P 500 is at about its 15-year average.
The Federal Reserve’s decision to hold off on raising interest rates indicates that even though they are planning to begin moving rates up, they are leaning more toward an accommodative stance for the economy. Some of the indicators that the Fed focuses on are the unemployment rate, the consumer price index, and the JOLTS (Job Openings and Labor Turnover) survey. But the Fed is also watching the broad macroeconomic environment as well as the stock market. Economic concerns in the emerging markets and the volatility of the markets were stated to be the reasons for leaving rates unchanged. This illustrates that despite the Fed’s wish to raise rates, the desire to maintain growth is greater and that should be viewed as a positive for the stock market.