gains Archives - Ninth Inning Investments

Happy New Year to all and what a year of celebration for the bulls in 2016. The major averages last year notched very impressive gains. The Dow Jones Industrial Average (see chart below) finished the year up 2,337 points or 13.42%, the tech focused Nasdaq (click here for chart) closed up on the year 376 points or 7.5%, the S&P 500 (click here for chart) closed up 194 points or 9.54% and the small-cap Russell 2000 (see chart below) finished out 2016 up a whopping 221 points or almost a 20% gain outperforming most benchmarks. This eye-popping rally really kicked into high gear after the stunning upset victory Donald Trump pulled off over Hillary Clinton in the presidential election. So that was last year, now let’s take a look at 2017 and what lies ahead.

I begin with the obvious. Markets are certainly overbought and have been since the November 8th election results. Then in December, the Federal Reserve raised interest rates for the first time in a year and then added language for an additional rate hike in 2017 to bring the total projected rate hikes this year to at least three. Historically a rising interest rate environment puts pressure on equities and in particular the high beta names. Consensus has it that the Fed will move slowly to avoid any shocks to the economy or the markets. However, with Donald Trump’s proposed economic pro-growth policies, debt and inflation should rise. So I am sure the Federal Reserve will be keeping a close eye on how inflation ticks up as 2017 unfolds. Should inflation rise faster than anticipated this too could be a challenge for the Fed and our stock market.

So based on our current market environment it is my view that volatility will not only pick up in January but the recipe described above signals potential elevated volatility throughout the year. We also will begin to hear from corporate America this month as we head into earnings reporting season. I would expect earnings from multi-national companies to be a bit challenged due to the continuing and significant strength that the U.S. dollar has been exhibiting. That said, there will be opportunities abound in this new year but I am preparing to embrace volatility and hedge my positions going forward. In my next blog I will talk about hedging strategies in order to offset the impact of potential increased vol. Until then, both Paula and I wish everyone the happiest and healthiest new year to all. 🙂

~George

Dow Jones chart Paula Mahfouz Russell 2000 post george mahfouz jr

After posting blistering gains in the month of October, stocks took it on the chin last week and it’s technically looking like more short-term downside could be in the cards. For the week, the Dow Jones Industrial Average (chart) lost 665 points, the Nasdaq (chart) retraced 219 points or 4.3%, the S&P 500 (chart) -76 points and the small-cap Russell 2000 (chart) closed lower on the week by 53 points or 4.4%.

Seemingly, the start of the selling pressure accelerated when the October labor report came out surprisingly strong. This report was released on November 6th. One could say that this is the main reason stocks have been under pressure. Pundits are now calling with almost certainty that the Federal Reserve has the green light to raise interest rates at their next meeting in December. Couple this will commodity prices continuing to fall, in particular oil, which is down recently almost 10% and you can understand why the markets would be under pressure. Or could it be the simple fact that October saw almost 10% gains across the board and the key indices were overdue for a pullback. I’d like to add to the mix that the latest round of economic numbers could also be weighing in on investor sentiment. This is evidenced by a weaker than expected retail sales number and weak retail earnings reports issued last week along with a very weak Producer Price Index. Sum all of this up and it’s no wonder the aforementioned indexes closed lower by almost five percent last week. From a technical perspective the key indexes have now breached their respective 200-day moving averages and if you are bullish, you would want to see the markets recapture this key technical support line and return to the uptrend that was intact throughout the month of October.

As the Thanksgiving Day holiday fast approaches, both Paula and I wish everyone a very safe, healthy and Happy Thanksgiving 🙂

~George

Ninth Inning Investments

gains

Happy New Year!

Is It A Looming Rate Hike, Or Something Else?