ITS ALL NOISE !
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Richard Croft, president, RN Croft Financial Group
FOCUS: Options & ETFs
Market outlook:
If we can gleam anything in 2015 it is the wide chasm separating noise and reality. Global stock markets have been subjected to noise in the form of macro-economic events, political nuance and behavior shifts. Comments from analysts suggesting we are experiencing a seventh inning stretch may be true. But given the anemic growth rate since the financial crisis, I would argue that we are playing a fifteen inning game. The critical fundamentals belie the late in the game analogy. S&P 500 companies are accessing cheap credit and cash reserves to buy back their own stock and with more than USD$1.75 trillion in cash reserves, there is no end in sight. Mergers and acquisitions have returned to pre-crisis levels. Aetna’s takeover of Humana being the latest in a long string of corporate deals with more to come if we are to believe surveys of corporate executives. Sentiment remains positive as momentum stocks, which thrive in a low volatility low interest rate environment, continue to stand out. Retail investors still fear a major correction while corporate insiders have been net buyers and advisory newsletters are equally split between bulls and bears. Equally constructive is the interest rate environment. It is not about when the Fed raises it is by how much. To that point barring any unforeseen event, don’t look for further rate hikes until late 2016 or early 2017. All of which implies more to come probably beginning in the second half of 2015 or early into 2016.