Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Stock Market Anxiety: It’s The Federal Reserve

By Gary GordonMarket OverviewNov 01, 2016 03:17PM ET
www.investing.com/analysis/stock-market-anxiety:-it%E2%80%99s-the-federal-reserve-200162067
Stock Market Anxiety: It’s The Federal Reserve
By Gary Gordon   |  Nov 01, 2016 03:17PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The financial media rely heavily on advertising sales from financial firms. Conflict of interest? Possibly. If scores of folks make “risk-off” adjustments to portfolios such that the demand for riskier assets (e.g., stocks, low-grade corporate bonds, etc.) falls of a cliff, Wall Street corporations may lose hundreds of billions in asset management revenue. And if investment companies struggle, the financial media will see a sharp decline in the advertising dollars necessary to turn a profit.

For the most part, then, you may wish to bypass the spin that reputable outlets place on the attractiveness of the stock market or the health of the economy. You’re primarily going to get headlines that cement a notion that the economy is fundamentally strong or that the stock market is essentially safe. (At least for the long haul, right?)

The latest example? Mainstream media commentators, writers and analysts expressed jubilation over the recent report that the U.S. economy expanded 2.9% in the 3rd quarter. Virtually none of them looked beneath the surface of the number. Even fewer questioned the sustainability or viability of the data itself, let alone acknowledged that the data will witness two more revisions before being finalized.

GDP Growth
GDP Growth

As the table above shows, two-fifths of the annualized GDP growth (1.2%) came from exports. This happened while the U.S. dollar was rising substantially during the 3rd quarter? When exports became significantly more expensive for importers? When global demand for U.S. products has been anemic? Color me skeptical.

If one digs a little deeper, according to the U.S. Bureau of Economic Analysis, goods exporting accounted for $41 billion of the $119 billion in economic growth. Were these exports across a wide range of products in a wide range of industries? Hardly. It came almost exclusively from a one-time agricultural lift.

Equally worthy of note, $38 billion of the $41 billion in exports came from a single agricultural product: soybeans. In other words, absent an enigmatic single shot from the exporting of a single agricultural product, GDP growth remains relatively tepid.

Real GDP Change
Real GDP Change

Still not sure? Consider the year-over year change in GDP on a rolling 4-quarter basis. The rolling 4-quarter peak occurred in the 2nd quarter of 2015.

Not surprisingly, perhaps, the S&P 500 has not made progress since May of 2015 eighteen months ago. Moreover, the 2130 level that once served as resistance to upward movement – a level that has more recently served as technical support – is beginning to crack.

S&P 500
S&P 500

The financial media may choose to blame it all on election anxiety. The problem there is ignoring the reality that the broader New York Stock Exchange Composite (NYSE) is actually down several percentage points over the last two years.

New York Stock Exchange Composite
New York Stock Exchange Composite

A more potent take is the reality that the Federal Reserve stopped expanding its balance sheet in the tail end of 2014. Ever since? Stock assets have, for the most part, struggled to make meaningful strides.

Fed Balance Sheet And S&P 500
Fed Balance Sheet And S&P 500

It may not get any easier going forward. Consumer sentiment also peaked near the time that the Federal Reserve stopped expanding its balance sheet in the tail end of 2014.

Consumer Sentiment
Consumer Sentiment

Small business optimism? Yes, you guessed it. Small businesses have grown increasingly troubled ever since the Federal Reserve called an end to the creation of electronic dollar credits for the purpose of buying assets (QE3) in the final quarter of 2014.

Small Business Optimism
Small Business Optimism

In essence, since the Fed stopped creating electronic money to expand its balance sheet, consumers and businesses have become cautious. And, by extension, consumers and businesses may not like future prospects until they become convinced that the Fed will not inadvertently bring on recessionary pressures.

Granted, economic moderation occurred in 2011 as well as 2012. One could make a claim that the recent economic slowing is similar to what occurred in earlier years. However, the Federal Reserve responded to economic slowdown concerns in 2011 with “Operation Twist” and ultimately pushed back recessionary pressures in 2012 with the introduction of “shock-n-awe” QE3 stimulus. Today, the Fed is gearing up to slightly tighten overnight lending rates with a face-saving year-end 25 basis-point hike.

Should investors be concerned? Perhaps. Consumer purchases in the recent quarter grew at half the pace (1.5%) of the prior quarter (2.9%). The influential Empire State manufacturing survey declined in October. And corporate investment in equipment has now declined for four consecutive quarters.

Fixed U.S. Investment
Fixed U.S. Investment

Bottom line? Neither the economy nor the stock market are in as good as shape as the financial media would have you believe. I continue to advocate having 25% in cash equivalents to reduce portfolio volatility as well as provide the “dry powder” needed to acquire assets at considerably lower prices.

Stock Market Anxiety: It’s The Federal Reserve
 

Related Articles

Paul Rejczak
S&P 500: Is A 5% Correction Enough? By Paul Rejczak - Dec 03, 2021 1

The S&P 500 bounced from the 4,500 level on Thursday as it retraced most of its Wednesday’s sell-off. Was it a reversal or just another upward correction? The broad stock...

Kevin Beckman
Bitcoin Range-Bound As Volatility Ebbs By Kevin Beckman - Dec 03, 2021

Bitcoin keeps changing hands in a tightening range, with volatility in the cryptocurrency markets keeps fading this week. The BTC/USD pair is stuck between the 20- and 100-DMAs,...

Stock Market Anxiety: It’s The Federal Reserve

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email