The investment markets, as measured by the broad averages, peaked last summer and drifted lower through the fall and into the early winter. After the Fed decided to raise interest rates in December by a minuscule amount, the markets plunged in January and February and saw some recovery in March.
The markets are still down from the highs of last year. Worse yet, many of the big dividend-paying stocks fell along with the growth stocks (usually smaller dividend payers), shaking the confidence of conservative investors collecting large dividends.
As most of you already know, the energy and commodity stocks sank further than most as commodity prices plunged — think unleaded gasoline and diesel fuel oil. Through all of this, municipal bonds, as measured by the large, well-known municipal bond mutual funds, performed better than their stock market brethren.
As we enter the second quarter of 2016 we can soon expect the GDP numbers for the first quarter of 2016. The forecast has been downgraded from more than a 2 percent increase to less than one percent by prognosticators. This economic recovery is anemic by historical standards and earnings gains are now disappearing as the elements of the recovery — low interest rates, a.k.a. monetary policies from the Federal Reserve — make asset holders richer, while the bottom quartile of the citizens continue to suffer from high unemployment, underemployment (a better or full-time job is desired but unavailable), low workforce participation and other issues that prevent those who do not have assets from joining the recovery. Stock prices in general and real estate prices have risen nicely, which is yet another boost for those relatively better-off financially.
Now the markets are changing again. Gold and silver are on the rise. Stock prices of mining companies are also rising as metals rise in price. What do the metals know about the economy that is not being mentioned in the media?
Energy stock prices are stirring also; rising above their 200 day moving averages. Perhaps, just perhaps, stocks that pay large and consistent dividends are firming too. As a group, what are investors now deciding about the future of stock prices for the balance of the year? **
By this time next year, we will have a new president and Congress guiding the ship of state. We still have no idea who will be in charge, only that it will not be the current leaders. Perhaps the markets are beginning to tell us that political change is coming and it might be for the better.
As most of you know, I have no special talents for predicting the future, and even though I own a large crystal ball, I am not yet adept at reading it! What is certain is that change is happening in the markets and some of this is predictive of future circumstances. The market often collectively understands what is coming better than any of its individual players – be they the market guru, the individual or the institutional investor. The best we can do is pay attention, notice that things are changing and know that some investment opportunity is presenting itself.
**Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector.
