Saturday, August 15, 2015

Stock Market: In The Treadmill

(Drivebycuriosity) - The stock market is in a treadmill. The S&P 500, the gauge for the US stock market, gained just 1.6% year-to-date. Pessimists could say that every (short lived) rally got washed away, optimists could counter, that every drop was erased soon. Take for instance the last week: A sharp sell-off on Tuesday & on Wednesday morning, a hysterical response to China´s currency devaluation,  got swiftly erased by a relief rally in the following hours.

The media offer a lot of explanations for the disappointing stock market: Expectations that the Federal Reserve will raise her interest rates soon, the first hike since 2006, the noise about Greece, China´s slowing economy and more. But I believe that the market is just consolidating, a normal and healthy phase in a long running bull market. After the gains of 2013 & 2014 the market seems to need some time to digest. We have seen such consolidations before in the more than 6 year old bull market, especially in the second half of 2011 and in mid-2012. Each consolidation phase was followed by another rally.

I think this pattern is repeating. This consolidation will lay ground for another rally step and the long bull market will resume. Recently we got more confirmation that the economy is doing well (businessinsider  reuters): US retail sales are coming back, industrial production rose more than expected, the weekly jobless claims are on a very low level and the service sector accelerated it growth. I think the Fed will hike her interest rates in September. This could start a new stock market rally because the interest raise is already priced in and the decision could be regarded as a confirmation of a sounder economy. And many pessimits are betting against the stock market. They will will get performance pressure and have to come back and their purchases will strengthen the rally.


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