Investors’ end of month February and March statements sure looked a lot better than end of January’s statements. Is the current market uptick here to stay or are we in a “bear market rally”? A loose definition of a bear market rally is a 5% or greater stock market gain following a stock market correction of 10% or more.
While no one has a crystal ball, these current data points suggest that it may be very difficult for this rally to continue:
-The Chinese economy has unquestionably slowed while most of Europe is trying to stay out of a recession.
-Worldwide manufacturing including the U.S. has been at recessionary levels for the last nine months.
-Globally, central banks are purposely printing money in the hopes of devaluing their currencies – which year-to-date has produced the opposite effect.
-In the U.S., stock prices are back to valuation levels above what their long-term earnings would support.
-The Federal Reserve is desperately trying to embark on a rate-hiking cycle while at the same time poor corporate earnings continue to dog U.S. companies.
-U.S. banks and insurance companies have taken on substantial risks over the last few years, none more obvious than the escalating default rate on subprime auto loans.
-Currently, there are slightly over 93 million Americans not working.
Generally, the stock market reacts mildly over the course of a presidential election year. While history may hold true for 2016, a good measure of caution is still advised.