This morning’s jobs report was just what the doctor ordered; Job growth was strong enough to keep the economy steaming along, but not strong enough to force the Fed to raise rates in June. The 223,000 new jobs created brought the unemployment rate down to 5.4%, the lowest in 7 years.
This good news has me a little worried. Stocks typically forecast 12–18 months out, so while they are going up, they are already looking ahead. In turn, stocks start to drop even while the news is still good. I’m not saying the economy is stumbling, but there are some issues that create concern which could frighten investors. For now, I believe the bull market is intact. However, a bear market and another crash are inevitable and way overdue, so stay alert, just as we do every day for our clients.
Below are 5 Reasons why I am cautious about this market.
1. Rates are going up…eventually. It won’t be in June, but with today’s strong jobs report, maybe in September. Even if you believe that the Federal Reserve will not act until 2016, the gradual increase is inevitable. We are already feeling a steady rise in home mortgages and car loans, neither of which bode well for the economy. If rates keep rising, the fragile real estate market will get slammed.
2. “Sell in May and go away” is an old market adage that warns investors to be cautious from May to November. Since 1950, the Dow Jones Industrial Average has had an average return of only 0.3% during the May-October period, compared with an average gain of 7.5% during the November-April period. Now, I am not saying sell everything and go to cash. That would be just as detrimental. Every day you sit in cash, your money is dead…worse than dead: you are losing 5.5% to purchasing power, inflation and taxes. The key is to make money in any market and not get hurt in a bad market by being properly invested. “Invest for need, not for greed” I like to say. In times like these, be the expert or hire one and work with a qualified retirement advisor so you have a plan for the good times as well as the bad.
3. Oil has risen 50% in the last 2 months, from about $40 per barrel to $60, the sharpest gain since the 1979 oil crisis. As a result, we have just lost 30% of our capital influx for consumers since oil peaked last year at $107 a barrel. I’m sure you’ve noticed the rise in the price of gasoline at your local pump.
4. The dollar has given back about half of its gains against the Euro this year. When it was realized that rates would likely not rise in June, which is what I have been saying all along, it fell back. We saw evidence of this last week with a weak US trade deficit report, the worst since the crisis days of 2008. It jumped from $34.9 billion in February to $51.4 billion in March; that’s up a staggering 41% month to month. Obviously foreigners are flooding the US market with their cheaper goods. This will continue to hurt the profits of big multinationals.
5. It’s political season again. This is a big one and generally below the radar of most forecasters and advisors. New candidates must convince us how terrible the economy is so we vote for them. Even though it’s not true, we’ll hear it enough to make us wonder.
Whether you are a bull or a bear, one thing is for certain: as you get older it gets harder to replace money and tougher to stomach volatility and losses…… and that’s where we can help. To learn more about The Springer Investment Approach, which is our powerful proprietary Investment Management Strategy designed to manage risk and deliver returns in any market, or to get a free second opinion on your portfolio, simply reply to this email or give us a call for a free consultation today.
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