Mark Levy’s Economic Update – Wednesday, October 08, 2014
A number of months ago, I wrote in this newsletter that there was a possibility that $90 per barrel would become the ceiling for crude oil prices as opposed to the floor. Yesterday, WTI Crude for November delivery at the New York Mercantile Exchange closed at $87.28 a barrel. You are noticing it at the pump, as I am, and gasoline price declines are a welcome experience for us consumers and our economy. You may remember my informing you that the United States now produces more oil than Saudi Arabia and the increased production capabilities and increasing inventories of oil and gasoline are contributing to the easing in energy prices.
Yesterday, the Dow 30 Industrial Average dropped 270 points and today it rose 270 points. This recent volatility is new, but not unexpected, Last Spring, the S&P 500 went down 4% before rallying to new highs. The drop yesterday was about a 3.25% from the equity market top to this recent low. While the daily swings have been large, the percentage of decline has been small. The reason has been largely due to positive underlying fundamentals in the economy and over time, we think this will continue. As always, we need to be prepared for corrections to occur as no one knows in advance when these will happen and to what degree.
At the moment, we are experiencing “yin and yang”. On one side the global headlines are a bit negative right now. On the other side, United States corporate earnings have been solid and have showed continued growth. Global headlines regarding Russia/Ukraine, Iraq, Syria, Hong Kong, Ebola, etc., are sources of investor anxiety. So much so that there are now concerns about the prospects for global growth, especially in Europe. New data recently in showed stresses in the European Continents’ economy and even though the United States economy is on a healthy growth path, fears of contagion exist.
On the positive side, Corporate Earnings season is upon us and may counteract the negative headlines with another dose of positive fundamental news. Four times a year, financial markets focus on what matters most to stocks: earnings. LPL Financial Research expects that the third quarter of 2014 could produce another good earnings season, which they also believe may impact stocks positively.
In conclusion, we believe this rocky period could last for a while the tug of war between global slowdown against United States growth plays out. We certainly are due for the stock market to take a “rest” from this impressive climb of the last few years. LPL Research believes the end of the year (November/December) will be a strong period for equities and other than some “fine tuning” we remain committed to our asset allocation process for the longer haul. – Mark
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Some of this research material has been prepared by LPL Financial. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Referenced material: LPL Financial Weekly Economic Commentary and LPL Financial Weekly Market Commentary, both dated October 6, 2014. Tracking #: 1-317017