economists

Volatility Back In Vogue…

Posted on by George Mahfouz

Since the start of the year there has been a very noticeable uptick in volatility in the marketplace. Twice over the past couple of months volatility has spike past the coveted 30 value level which is considered to be the level that demonstrates a large amount of investor uncertainty and/or fear. This you can see clearly in the chart of the Chicago Board Options Exchange Volatility Index, Symbol: VIX (chart). The VIX tracks the S&P 500 and calculates the next 30-day expectation of implied market volatility of a wide range of call and put options related to the S&P 500. Investors have not seen this type of volatility in quite some time and traders and short sellers have certainly taken advantage of it.

Let’s take a look at what the increase in vol has done to the major averages. Year to date the Dow Jones Industrial Average (chart) is down over five percent, the Nasdaq (chart) is lower by almost nine percent, the S&P (chart) is off by over five percent and the small-cap Russell 2000 (chart) is down almost nine percent on the year as well. That said, these key indices have bounced sharply off of their recent lows in mid-Feburary and crude oil (chart) has seemingly found a interim bottom around the $30 dollar level.

So now what? I am expecting volatility to continue throughout the month of March especially as we lead up into the upcoming Federal Reserve policy meeting March 15-16th. Most experts do not expect the Fed to raise interest rates at this meeting and furthermore not until the economic data consistently proves otherwise.  In fact, there are certain economists out there that think that the Federal Reserve is handcuffed for now and won’t raise rates until the fourth quarter because of the global turmoil that has surfaced this year especially in China and Europe. The current global equity sell-off is without question part of the reason for the increase in vol here in the United States. Whatever the case is, I will be listening to what tone and language Janet Yellen will use at her press conference post meeting to get a sense of what’s next for rates and how this will effect our markets.

Good luck to all 🙂

~George

Global Concerns Give Markets A Pause…

Posted on by George Mahfouz

Stocks had a very volatile week as tensions elevated in Ukraine and now China has seemingly hit a soft patch in its economy. For the week, the Dow Jones Industrial Average (chart) fell 2..35%, the Nasdaq (chart) gave back 2.09%, the S&P 500 (chart) -1.96% and the small-cap Russell 2000 (chart) ended the week lower by 1.82%. I do not think the most recent retreat in stocks is anything beyond the current global headline risks as our own economy appears to be intact and growing, albeit modestly. Some economists believe China will maintain a 7.5% growth rate this year while other pundits believe a cooling off of China’s economy would affect our markets here. Should the latter be the case, I would assume the Chinese government would take measures to help prop up their economy by injecting enough stimulus to ensure the targeted 7.5% growth rate for 2014 would not be breached. Recently, the economic numbers across the board coming out of China has been weaker than expected, especially in the manufacturing and export sectors.

This past week also saw an escalation in the crisis in Ukraine with both sides increasing the chatter about a potential military conflict as protests have become extremely violent. Governments from around the world are now are attempting to assist in the negotiations with Russia and Ukraine to formalize some type of accord. So it’s no surprise that a “risk off” mentality has come into the markets for the time being. I do believe that once things settle down in the Ukraine and the China headlines become less frequent, we could consolidate here for a bit as the first quarter of the year winds down. Then of course as we enter into April, all eyes will be watching how corporate America fared during the first quarter as Q1 earnings reporting season will begin. Between now and the end of March, I will be paying closer attention to our own economic data which will most likely translate into companies Q1 earnings reports.

Technically speaking, the Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the Russell 2000 (chart) all appear to be heading towards their respective 50-day moving averages, in fact the Dow (chart)  actually breached its 50-day on Friday. The 50-day moving average is a technical indicator I favor as do other certain market technicians. Historically, when stocks or indexes reach their 50-day or 200-day moving average for that matter, support is typically found and a reversal of the stock or index ensues. The moving averages are also followed by certain institutional investors and select computerized algorithmic trading models, which could also be a reason why the moving averages can act as a support mechanism. Now I am not suggesting that the moving averages are infallible, I personally utilize this indicator mainly from a technical standpoint to help me navigate current market opportunities. Good luck to all.

Have a great weekend 🙂

~George

 

June jobs report puts the brakes on the market…

Posted on by George Mahfouz

Once again a disappointing jobs report issued on Friday sent stocks lower. The Dow Jones Industrial Average (chart) closed down 124.20 points, the Nasdaq (chart) -38.79 points, the S&P 500 (chart) -12.90 points and the Russell 2000 (chart) -10.29 points. Markets were lower on Friday due to the lack of job growth that continues to plague the economy. For the month of June, the private sector only added 80,000 jobs compared to the 90,000 jobs economists were expecting. Even if the 90,000 mark was met, I still believe equities would of sold off. This economy needs 200,000+ jobs added monthly in order to make a meaningful dent in the unemployment rate and to have a real effect on the economy.

Next week marks the beginning of the second quarter earnings reporting season. Aluminum producer Alcoa (NYSE: AA) kicks things off with reporting their results on Monday. Two other standouts that report their earnings next week are JPMorgan Chase (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) which issue their results on Friday. I will be particularly interested in what JPMorgan has to say for their second quarter. This is the period in which their trading division experienced a multi-billion dollar trading loss.

As we enter into second quarter earnings reporting season, market expectations are so low for the quarter that I am looking for some upside surprises to occur within certain sectors. I am not sure if we are going to see much top line growth, however, over the past several quarters, companies especially in the tech sector have demonstrated exceptional productivity prowess which have certainly accentuated their bottom lines. That said, I will be extremely careful with how I navigate and trade these markets with a preference towards waiting until earnings reporting season concludes before making any considerable commitments. Good luck to all.

Have a great weekend 🙂

~George