Putting ‘The Markets’ News Into Perspective

The markets have been experiencing significant turbulence lately. There is no shortage of negative news. You simply have to turn on the TV. What I’d like to do right now is to try to put things into perspective.

I don’t need to run down the litany of negative press in today’s marketplace. Instead what I would like to do is explain how just maybe things aren’t as dire as one would be led to believe.

First, there appears to be a growing disconnect between what is happening with the current market decline and the fundamentals of our economy. The major averages have been off as much as 15% from peak values over a period of just a few months. This decline has largely been attributed to a decline in oil prices along with a slowing of world economies most notably China. The fear appears to be that we may slip into a recession.

Now when one looks at the US economy, the fundamental data suggests GDP growth of around 2%. Retail sales and employment rebounding. And corporate earnings coming in on target for the most part.  Certainly this news is not extraordinary but it is not miserable either. In fact, compared to most of the worlds developed economies, the consensus is that our economy is in the best shape overall.

In addition, let me point out some other recent news developments. It was just reported that Jamie Dimon of JP Morgan purchased $25 million of his own company stock. Amazon announced a $5 billion stock buy back program. Former Merrill Lynch Chief Economist Gary Shilling is calling for a bottom in oil around $20/ barrel and for the 10 year treasury to bottom around 1% in yield. Today we sit around $26/barrel and 1.69% on the 10 year treasury.

Noted Technician, Tom DeMark, is calling for a market bottom within the next week. He is looking for a possible bottom on the S&P 500 at roughly 1750. We currently sit around 1850. This means that he believes the market could fall a bit further before reversing course.

The bottom line is that we have been through corrections of this sort in the past. In each instance prior, when the correction ran its course, we resumed the long term uptrend in the market. Remember, successful investing involves time in the market, not timing the market.

To learn more about Edward McDonough, view his Paladin Registry profile.