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Monthly Archives: February 2016


It has been a rough start to 2016 for the stock market. In fact, it’s been one of the worst starts to a year in the history of the S&P 500. This week we look at how stocks have done historically after other similarly bad starts, compare current fundamental and technical conditions to prior bear market lows, and discuss some potential catalysts that could help turn stocks around. While recession odds have risen (we place the odds at about 30%), we do not expect the S&P 500, down 12.5% from 2015 highs, to enter a bear market.

Down 8.8% though 29 trading days, 2016 is the third worst start for stocks over the past nearly 90 years. Going back all the way to 1928, the S&P 500 Index (and its predecessor S&P Index) has been down at least 5% on the 29th trading day of the year 19 other times. So what has happened the rest of the year? The good news is that after a bad start, for the rest of the year the S&P 500 has averaged a gain of 5.3% (the median is also 5.3%), and the rest of the year has been positive 58% of the time.

The best rallies after bad starts were 49% in 1935 and 36% in 2003. Going back 40 years, the S&P 500 has been down 5% or more after 29 trading days 10 other times besides this year. The rest of the year was down more than 10% only once, in 2008. That year saw a 33% drop from the 29th trading day until the end of the year. In other words, a sizable drop from here for the rest of the year would be extremely rare.

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Valentines Day Inflation

It is not often that a mundane financial market concept like inflation crosses paths with a very real part of our everyday lives. Inflation is often thought of as a bogeyman that erodes our financial well-being and causes us to work harder to make sure we “keep up.” Price increases are averaged into one of several widely followed inflation indexes and reported throughout financial markets and the popular media so we know the inflation rate, which affects our cost of living and influences investment decision making.

Inflation gets more interesting if we apply it to upcoming purchases and how it may impact gift giving for Valentine’s Day, the fourth busiest shopping holiday behind Christmas, back to school, and — only marginally — Mother’s Day. When measuring cost increases over time, the rate of inflation, most investors think of the Consumer Price Index (CPI). The CPI is a broad measure of price changes on over 200 items (yes, more than 200), organized into eight broad categories that include apparel, housing, recreation, and transportation. If there is an item for sale to consumers, the cost is likely tracked by the CPI.

Digging into the CPI may help answer the question of what to buy a significant other for Valentine’s Day. By taking a look at several Valentine’s Day–themed items measured by the Bureau of Labor Statistics (BLS) in the CPI calculation, we may be able to add some insight on gift giving for this upcoming holiday.

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In Punxsutawney, PA, a groundhog named Phil either will or will not see his shadow and we’ll either be doomed to repeat the first six weeks of winter again (which haven’t been that bad in Boston at least) or have an early spring. Groundhog Day enthusiasts claim that the climate predictions made by Phil the Groundhog (and his “cousins” across the country) are accurate 75 – 90% of the time. The United States National Climatic Data Center (NCDC), the keeper of all weather statistics for the federal government, stated, “The groundhog has shown no talent for predicting the arrival of spring, especially in recent years.” In recent weeks, there have been plenty of “groundhogs” in the financial markets and in the financial media. For some investors, the fear is that the market’s performance in January 2016 will be repeated over and over again, as in the classic 1993 film Groundhog Day starring Bill Murray and Andie MacDowell. Other investors fear that 1998 will play out all over again, triggered by central bankers’ policy mistakes, volatile currency markets, wave after wave of currency devaluations, and eventually a sovereign default. Another group of Groundhog Day aficionados think that the drop in oil, the rising U.S. dollar, a lack of corporate earnings growth, a manufacturing recession, a hard landing in China, and global central banks “running out of bullets” have returned the global economy to the precipice of another 2008.

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