When it comes to the stock market, I'm not one for doomsday theories.
Those that are tend to metaphorically climb a brick wall, constantly reexplaining their logic for such over and over again. And while many of these arguments might make “logical” sense to most people, at the end of the day it's all about what actually happens. Conversely, I'm not one to pop open a bottle of campaign prematurely. I have always been driven by the idea of one-step at a time, with an ultimate positive outlook on the macro environment.
As a society, we fix things. We don't just walk away, throw up our hands and say, “oh well, time to burn”.
And people like to complain more as they get older….why? Because we gain more knowledge and formulate opinion that are rarely changed.
But I can guarantee you that the same type of guy that says “the world is going to hell” in 2014 existed in 1914, and 1814 as well. That much about human nature never changes.
The S&P 500 just closed out for the year positive at 11.39%. This will be the 6th consecutive year that the S&P hasn't produced a loss since 2008, which closed down -38.47%. It took 3 years to erase those losses, and since then, we have doubled the movement, and thensome.
In October, the Fed took on a different tone than they have since this uptrend began. For starters, the “end” of quantitative easing was announced. We'll see where that goes. As a reminder, the inception of this uptrend began with quantitative easing, and major policy changes (aka more quantitative easing) thereafter, have come in line with renewed buying pressure. Believe what you will about this matter, but that's what's happened.
At some point, we're going to see a material change in policy toward interest rates, as the world has been waiting for quite some time now. The problem, of course, is the lack of wiggle room afforded in order to accommodate any kind of hike. Recently, when we hear comments coming from the Fed about a move coming closer, they keep pushing back, which appears to be more of a psychological dialogue to keep the good times rolling as opposed to actual, bonafide action.
The reaction to poor dialogue is likely to be to the cause of any kind of future decline. In the meantime, expect the norm.
The chart below shows the S&P's performance since '08 (weekly chart), with red lines segmenting the years.
This is all very similar to a classic structure we see quite often across many time series, where we have a drive, followed by a shorter term channel, followed by another drive. The final push tends to be an exhaustive movement ahead of a correction.
That's not to say we can't simply going higher, but January's first to second week can bring out the bears.
Will this be a quick rollover? It would be difficult for me to say. I would expect more of a range up here than anything else, given the persistent nature of this trend. The fact that we are technically hyper-extended goes without saying, and I can't fathom any kind of long term wealth creation coming from prices like these. But this of course is a relative statement.
Longer term, we see a similar story:
And world equity indices are playing tug of war for continuation and reversal.
Finally, the index, Crude and NZD/JPY, which we'll use as a general meter of higher yield risk:
The office is rather quiet today and so I thought, for a change around here, I would just post some recent thoughts.
Thank you all very much for a great year and all the best to you in 2015.