Tug of War--2/4/2016
As I've been mentioning for quite awhile, volatility should be the name of the game for 2016. And, so far, that is exactly what we've seen; stomach churning, headache causing, frustration laden volatility. This volatility is being caused by a massive game of Tug of War being played by the Bulls and the Bears on Wall Street.
The Bears seem to be focused on the concept that liquidity is being drained from the system, with the most notable example of this concept being Janet Yellen starting her tightening cycle. It appears that they think this liquidity drain will lead to a recession and cause another banking crisis.
The Bulls appear to be focused on cheaper prices for stocks than we've seen in a long time and rebuff the global banking crisis idea by noting that the financial strength of banks is notably better than it was heading into the 2008 crisis.
But this Tug of War doesn't just have these issues to fight over. Frankly, the list is quite long...
Bears say China is falling apart, as noted by falling commodity prices and Chinese GDP. Bulls say the Chinese economy is shifting from a manufacturing based economy to a consumer driven economy.
Bears think low oil prices will crush the global economy, Bulls think it allows for even more tailwinds concerning Consumer Spending and Confidence.
Bears think the strong employment numbers will put a strain on corporate earnings, Bulls think that more people with jobs will boost consumer spending and, therefore, corporate revenue.
And this fight goes on and on.
Most people might not follow the actual items the Tug of War is being fought over, but rather they see the results of the fight. And that is stock prices that surge one day, only to fall the next. Heck, sometimes these price swings happen time and time again all in the same day!! And this leads to the stomach churning, headaches, and frustration.
What is weird about all of this is that no one is really wrong. We just don't know the final outcome. Stock prices are cheaper than they've been in awhile, but Yellen has started a hiking cycle. This hiking cycle does tighten monetary conditions, which could lead to a recession. But banks are in very strong financial strength. Chinese GDP is slowing its growth pattern and they are transitioning to a service based/consumer driven economy. Oil is low and does impact corporations, including banks. But cheap gas does line the consumer's pocket.
So, that's the issue and why the market's are gyrating. I wish it would calm down and simply mark time until we see what the results of these economic changes will be, but I don't see that happening. With that, we will deal with it as best we can and, hopefully, find a few investment opportunities that this volatility creates.