What the Heck is Going on with the Markets?

What the Heck is Going on with the Markets?

We're sure that you're being bombarded with headline news and “talking heads” noise about not only the U.S. market but China’s market as well. China is the second largest economy in the world, so it’s no surprise that what happens over there has a ripple effect across the globe. But just to put things in perspective, we thought it wise to outline some key points:

  1. Growing pains... China’s stock market was in a bubble that just popped. Consider that this country, while a formidable economic power, is in the adolescent stages of capitalism. Ever witness gangly youth playing basketball? They have lots of energy and strength and can sprint across the court in the wink of an eye; yet they lack discipline due to lack of maturity and/or experience. Well, that’s China. And with their first real crack at capitalism via the stock market, this is the result.
     
  2. In addition to China’s stock market meltdown, its government's decision to devalue the Yuan is putting additional pressure on US multinational companies. That’s because the US dollar, already very strong, will get even stronger, effectively making US products more expensive in the global marketplace.
     
  3. Oh yeah, remember North Korea’s claim that they launched a hydrogen bomb a few days ago? Well, that’s enough to rattle anyone’s cage and counts as a “Black Swan/Out of the Blue” event.
     
  4. Lots of oil... Oil prices have been in a major decline over the last 12 months. While that’s been good for us as consumers—less to pay at the pump—it’s been a tough spot for oil companies, which may have been leveraged too aggressively, counting on continued high oil prices.
     
  5. On the plus side, the U.S. economy is entering its 7th year of economic expansion. Non-farm payroll employment is at its highest level since 2008. Inflation is low, US corporations are still profitable, wage growth is moving up, and the Fed has finally begun to move from a Zero Interest Rate Policy (ZIRP) towards a path of gradual growth. Finally, consider that the U.S. is still the strongest economy in the world—and while there may still be some choppy days ahead until China calms down, sharpen your pencils, make your lists, and let’s talk about what to add, buy, or sell in your portfolio.
     

Postscript: Last week the U.S. economy added over 290,000 jobs compared to the 200,000 that had been projected. Unemployment stands at 5%, and by Federal Reserve and general economic standards, the U.S. is considered at full employment.