Volatility allows for the possibility that prices will recover soon and go to new highs. Any setback is just temporary. The market turbulence, it seems, is merely designed by invisible market gods to test your character as a long-term investor. Don’t give in to panic, the investment people say, and you’ll be rewarded.
Until you aren’t!
A year ago I said the crash in commodity prices signaled a weak economy and that financial markets would eventually have to reflect this fact. The widely watched S&P 500 Index closed at 1,994.99 on January 30, 2015 just prior to the publication of the linked piece. Last Friday’s close was 1906.90. The U.S. stock market hasn’t exactly reflected the weakness in commodities, but it hasn’t gained any ground either.
In addition, last August I wrote that low oil prices were also a reflection of this weakness and that all the talk about cheaper oil giving a boost to the economy was misplaced because of the immediate loss of oil-related employment and of revenues to companies and to governments which, of course, tax the oil. The S&P 500 is down about 200 points since then, but any significant adjustment still looks like it lies in the future.
Of course, starting in August stock markets around the world began to fall. Central banks reacted with words of support, and the U.S. Federal Reserve Board of Governors put off a long-anticipated interest rate hike because of weak market conditions.
Stock prices then rebounded to near their previous levels and all was forgotten…until the beginning of this year. The continuing rout in oil prices began to underline not only the weakness in the global economy, but also the unclear situation at major banks holding large energy-related loan portfolios.
…click on the above link to read the rest of the article…
