I Think the Correction is Officially Over – the S&P 500 is less than 1% away from reclaiming its July 20 high in further evidence the selling pressure experienced in late August was a correction, not a bear market. I’ve written about this several times noting I saw the selling pressure as short-term, and for investors to keep cool, though I half expected the market to retest the correction lows. It still can, of course, but I don’t think that’s very likely at this point. The economy usually experiences a seasonal kick in Q4 and I expect that to be the case here.
Seasoned investors know that when the market experiences sharp, rapid onset selling pressure with no change in fundamental data or outlook, it’s the classic sign of a correction and not the beginning of a bear market. I rather enjoy watching the media make hysteria over a market event that, trend-wise, is actually a very normal and healthy part of bull markets. It helps keep a solid foundation in that wall of worry bull markets love to climb.
M&A Record Year Likely (Again) – investors often get lost in the mire of Fed watching, worries over China, concerns over cratering commodities prices and geopolitical issues like the fight against ISIS. At any given time, the global economic and investment picture can look rather bleak. My advice: when the confluence of fears gets you down on stocks, remember where to keep your focus – U.S. Corporations. And just like that, optimism sets back in. Corporations have been busy growing record earnings (ex-Energy), buying back shares with the record amounts of cash they have on hand, and swallowing up peers in M&A deals. Right now, these deals are on pace to hit $4.5 trillion for 2015. That’s trillion, folks. 2015 is set to eclipse the $4.3 trillion year had in 2007, with Health Care notably the busiest sector.
Bank of England’s “Super Thursday” – the Bank of England voted 8-1 to keep interest rates steady at 0.5%, marking its 7th consecutive year without a rate hike. The U.K. enjoyed the best GDP growth rate amongst ‘developed’ countries last year, having expanded by 2.6% compared to the U.S.’s 2.4% clip. Both central banks are moving too slow to commence their respective rate hike cycles, in my view, so when they do finally commence in the near future it should not adversely impact future growth in a major way. The BOE is almost certainly taking their cues from the Fed, so I don’t expect a rate increase in England until we see one here.
Chinese Projections Subject to Change – In a speech this week, Xi Jinping declared a goal to have China’s annual growth not dip below 6.5% over the next five years in order to realize its economic goals by 2020. China also laudably continues pressing forward with goals of economic reform, even amidst concerns over growth and the market’s impatience with what could be a ‘new normal’ for China. I see it as a positive. The more China opens their economy to market forces versus state-run spending and investment programs, the better chance it has of creating a long-term path to stability. In a sign of more willingness on that front, China announced it would further open its markets to foreign investment by establishing a trading link between Shenzhen and Hong Kong by the end of the year. This is key to attaining more market participants and confidence in the functionality and efficiency of equities markets, and would help China convince MSCI to allow it entry into developed world indices. Quietly, Chinese equities have been staging a strong comeback amidst all this news (though the media barely reports it). The Shanghai Composite is up over 20% from an August low.