What is happening as we are watching the market shift? The feds are capping rate hikes and the results are stabilizing the market – but are they?
Hi David Reyes here with you. I wanted to give you a market update. It’s been a little while. And I call this the “FOMO market, the fear of missing out.”
We had in October of last year that was the worst October on record, I think, since 1931. And now the beginning of this year since Christmas, we’ve had a nine week straight advance up in the market. So we have gone down 20, up 16. We kind of go nowhere in the last year, year and a half. So this market was really in trouble following October, November, December. And the Federal Reserve stepped in.
So one of the things that I want to talk to you about is the Federal Reserve stepped in and as you may know they have been raising interest rates. Well, they decided for the first time ever, really, to not raise interest rates into the end of a bull market – which technically we’re in a bear market today because we’ve had a drop of 20% from highs to lows. But it is unprecedented for the Federal Reserve to stop raising interest rates, or lower rates, at the end of a bull market, at the end of an expansion.
So this is totally an experiment quite honestly. It’s caused the market to rise very rapidly because when the Federal Reserve lower rates, theoretically, the market will rise. And so the problem with that is you have a lot of issues. You have Europe, who has basically negative earnings growth this last year. I think -1%. You have basically almost all of the S&P 500 companies have reported and 73% of them have been negative earnings guidance on what their prospects are for the future, meaning they’re going to be worse than they were today.
You have S&P earnings growth that was estimated at 3% just in December and now it’s a negative number. I think it is -2.7%. So you have negative earning growth coming off a 2018 where we had the highest earning growth in many, many years.
So the reason I’m sharing this with you is you have to be careful. This whole fear of missing out. The market’s retraced a lot of its losses. I still think there is going to be a lot of volatility going forward. And I just want to make sure that you protect yourself, that you have a game plan. Make sure you understand the risk that you have in your portfolios.