Tuesday, December 22, 2015
Paranoia And A Change In Political Expectations
Merry Christmas! This trading week is cut short by the holidays as a lunch time closing bell is to be heard on Christmas Eve and no trading on Friday. Analysts begin to wrap up 2015 with their "year in review" articles. Retail stores hope for the last of the shoppers to trickle in and spend the extra cash they've been able to hold onto with low gas prices. The investing world as a whole looks forward to fourth quarter reports and 2016 projections. The joyous feelings appear to reverberate through the market today with all major market averages up attempting to put last week's slide behind them. Earlier in the day, both the Dow Jones Industrial Average and the S&P 500 saw large, early gains parsed down to 0.12% and 0.16% respectively. The midday drag shows just weak the crowd of sellers are in this current market. The same goes for crude oil. Larger losses were pared back to a drop of -0.20% on the price of WTI benchmarked crude oil. Major forces might be slowing down to revert back to the oscillating movement that defines periods of volatility. Until the end of 2016, waiting move will populate the trading floor as yearly earnings and economic indicators roll in. A more accentuated move of -1.46% is seen in the Euro STOXX 50 with the Spanish market plunging -3.42% as a reaction to austerity measures by the government. With the possibility of more piling debt in the European countries, tensions in the eurozone and the general European Union could be augmented in the coming year. On the other hand, Asian markets look to stabilize with gains as large as the Shanghai Composite jump of 1.77%. Long-term (10Y) treasury yields for the US, the UK, and Germany are up once again with uncertainty still lingering in the long-term. Feelings like those in the stable 1990's seem so surreal as we prepare to move into the latter half of the 2010's. Consumers and investors are not as confident as they used to be. Capital slowly shifts out of the sight of the public into a derivatives market that continues to operate almost under the radar. Every conversation is deluded with an analyst bringing that "meltdown" option even a bubble is clearly not evident. Perhaps this still plays into our investment decisions; it would surely explain a the slowdown in overall spending. In my opinion, economists should start paying more attention to the symptoms of the late 1930's which sent in through another recession after the stock bubble in 1929. Another thing that is often discounted as a real economic factor is the development of the next election in 2016. As Republican candidates continue to divide over certain issues and Trump's lead widens, conservative voters are continually being split away from a possible majority that could counter a Democratic force rallying around Clinton. As the election inches closer, business and firms will be preparing for the most likely outcome, another Democrat in office.
In match-ups with the leading candidates from both parties, polling numbers only have Cruz as capable of tying Clinton. Ted Cruz isn't even close to leading Trump on the Republican side. The shadow of another Democratic year, with chances of Bernie, has helped investment spending to slow. Increased taxes on the largest corporations would be another likely outcome with a Democratic victory as well as the possibility of government spending crowding out private capital. Financial institutions might also be under fire as ghosts of the financial crisis may be revisited with more Democratic leadership. Barack Obama's response to punishing the big banks for their irresponsible action has been tepid at best which has heated up support for Sanders' rhetoric. That's why we shouldn't be surprised that 2015 marked a record level of mergers and acquisitions with some of the largest mega-deals being approved. On top of that, IPOs for this year lagged behind their usual numbers. I think these two numbers are representations of the expectation of who will win the 2016 election, but it is in no way a prediction. Softer consumer consumption may also be a response to these expectations as well. In their opinions, investment and consumer spending drops aren't leaving holes in the growth of the economy, With prospects for higher wages and free college from either Bernie or Clinton, government expenditures are expected to fill in the gap. An increase in the savings rate can be traced to the expectation in changes of fiscal policy as well. The change in expectations that has occurred will negatively affect the business outlook for next year with small business start-ups and loans discouraged. Incentives for corporate growth and profits will be taken away, and government filler will be the prescribed solution.