This is a syndicated repost published with the permission of Money Morning - We Make Investing Profitable. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.
As the world reels from the barbarous, but all too predictable, terrorist attacks in Paris on Friday evening, markets will also be trying to regain their balance after a difficult week. What the Paris attacks have in common with last week’s market losses is that they both disabused observers of the illusions that they can continue ignoring the consequences of political and policy weakness.
Just as Western nations can no longer shrug off their borders or the fight against ISIS in the Middle East – imagining this will be sufficient to wipe the scourge of jihadist terrorism from the face of the earth – investors can also no longer fool themselves into believing that markets will defy the reality that debt-engorged economies and companies will not be able to grow.
As painful as last week’s bloody reality checks were, the sooner citizens and investors use them to demand changes in how their societies and economies are managed, the better off they will be.
The Global Economy is Simply Slowing Down
The surprisingly strong October stock market rally is now going up in smoke. Last week, the Dow Jones Industrial Average lost 3.7% or 665 points to close at 17,245.24 while the S&P 500 dropped 3.6% or 76 points to close back in negative territory for the year at 2023.04. The Nasdaq Composite Index lost an even greater 4.3% to finish back below 5000 at 4927.88.
The main culprit behind all of these losses was the continuing collapse in commodity prices. The bottom dropped out of oil priceswith WTI crude ending the week down 8% at $40.74 per barrel. Most likely prices will be in the $30 range shortly. Copper and aluminum prices also plunged to more than decade lows, vaporizing any hopes that China’s economy is stabilizing.
The markets were also battered by weakness in the retail sector. Macy’s (NYSE: M) reported numbers that were far below consensus expectations, pushing its stock down below $40 per share from its July high of over $72 per share. CNBC will have to find another company to run informercials for this Christmas season after hawking Macy’s for the last couple of years.
Nordstom Inc. (NYSE: JWN) followed up with similarly terrible news and its stock tumbled as well. It is increasingly clear as I have been warning all year that consumers are not spending the money they are saving on lower gasoline prices at the mall. Instead, they are using that money to deal with higher healthcare costs and to pay for the higher prices of everything else they need to live. Only the Federal Reserve thinks there is no inflation. Those of us who reside on Planet Earth know better.
The Fed Will Have More Excuses Now
The high yield bond market is also a shambles. After rallying in October, high yield bonds are busy giving back all of their recent gains in November. Before Friday’s stock market rout, the average yield on the Barclay’s High Yield Index (NYSE: JNK) had already moved back to 7.81% and the average spread was back to 579 basis points. Most likely they will soon hit 8% and 600 basis points again, respectively.
Liquidity conditions in the market are nothing short of horrible. The returns of large credit funds are, for the most part, terrible this year – Though they are not as bad as the returns of large equity hedge funds which continue to sink into the red with every passing day.
Facing this backdrop, it is increasingly likely that the Federal Reserve will not raise rates in December. With the dollar hovering at a 13-year high (the US Dollar Index (DXY) closed the week at 98.80), commodity prices plunging, stock markets in reverse, the Purchasing Managers Index (PMI) at 50.1 and economies around the world faltering, raising rates in December would do more harm than good.
The time to raise rates has long passed. The October rally was fueled by hopes that central banks would once again come to the rescue of markets. The economic data is telling us that markets are beyond saving.
Add to that the Paris attacks and markets are likely going to see further stress. Investors should behave accordingly and reduce their equity holdings immediately. We may be about to retest the September lows.
Join the conversation. Click here to jump to comments…
You may also like…
The “Secret” Profit Play in Trump’s Portfolio
By Money Morning Staff Reports
The man knows how to make serious money.
And he always has…
Last year, Trump made more than $27 million in stocks. And he’s in position to profit again – possibly with a single stock.
That’s why we want you to look at this…
As you’ll see, Trump has built a massive position in one company.
It’s a firm that happens to be at the center of one of the biggest insider buying binges I’ve ever seen.
One of this company’s top directors recently dropped $20 million on 800,000 shares of his company’s stock.
And there’s only one reason insiders buy in massive quantities like that…
They see a chance for huge profits.
Apparently, Trump does too.
According to his financial disclosure forms, he has personally scooped up shares of this firm, plunking down as much as $1.55 million of his own money.
And you can play right along with him…
To get full access to all Money Morning content, click here
About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.
Disclaimer: © 2015 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.
The post The World Can No Longer Ignore These Threats appeared first on Money Morning
Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.
