Darrell Bryant Retirement Blog

Wednesday, November 11, 2015

5-Minute Market Update November 9

By Darrell Bryant

Comments from Jason Wenk, Chief Investment Strategist at Formula Folios Posted October 12, 2015– I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

US Stock markets were strong last week, which made many investors think that everything was up. Not the case though, as International stocks, commodities, and bonds were all down. In the end, while it was a strong week for US Stocks, most well balanced investors probably were closer to break even.

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Lesson to be learned: When the S&P 500 and Dow go up, it’s nice, but doesn’t mean everything goes up, nor does it matter.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There were no changes to our economic or Bull/Bear indicators this week. Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term future (think <18 months).

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Weekly Comments

From last week’s comments…

Our approach is simple. We stay committed to a long term plan to be optimistic when presented with data that suggests we should, and cautious when it doesn’t. Today, this means being mostly invested, while still having a close eye on key market indicators that could help warn us if the October rally was really just a head fake.

November is early, but already showing some really mixed signs. The possibility of a Fed rate hike now appears to be an actual possibility again, which is spooking some markets quite a bit. As of this writing, the Dow is down about 200 points, erasing most of last weeks gains. All told, November is just about flat after the record setting gains of October.

Accordingly, investors are confused. This is okay. What’s not okay is changing course from a long term investment plan. This doesn’t mean buy and hold through severe losses, mind you, just that investors need to pay less attention to the wild short term swing of the market, and more attention to staying on track for their long term goals.

In other words: a few percent decline is no fun, but it’s not devastating to a long term investment plan. So we should always pay close attention, but never panic.

Looking into the future, the key breakthrough I’m watching for is the S&P 500 reaching it’s previous all time highs, and if it can break through or not. I think this may happen yet in 2015, and if it reaches and fails, the market correction will likely ensue (going back down to the lows of 2015). If it reaches and breaks through, it could make for a really nice rally into early 2016.

More to come soon. Stay tuned.


Jason Wenk
Chief Investment Strategist