I saw Harry at a planning meeting this week and as we were “talking shop” about the markets, we could only shake our heads in acknowledgement of the Fed’s lingering lift on the market.
We agreed the Bank of Japan’s Halloween day stimulus announcement had the feel of a coordinated “baton passing.” Whether it truly was or not, investors have taken comfort in the fact that some central bank still has its foot on the gas, even if it’s not the Fed.
And the European Central Bank (ECB) has its foot hovering on that same pedal.
Speculation is mounting that its stimulus efforts are long overdue. And we think it’ll be a classic case of “too little, too late” as the euro zone is on the razor’s edge… nearing a dip below the zero line for both economic growth and inflation.
While the S&P 500 is up an astonishing percentage since the middle of October, momentum maxed out during the first week of November and prices stopped pushing higher last week.
As I see it, we could be in for a pullback this week and next.
For now though, let’s take a closer look at these trends as we go around the market in 10 seconds…
• Global stock markets really only eeked out a small gain last week with the exception of Chinese stocks, which gained a solid 3%. Interestingly, the Nasdaq gained a nice 1.6%, while the small-cap Russell 2000 index trailed with a 0.10% gain.
• Bond markets were mostly lower last week, led by a steep decline in junk bonds (JNK), which lost 0.8%.
• And commodity markets were split. Energy markets continued to fall sharply, with oil (USO) down 3.1% and natural gas down 7%. But we did see some movement with gold and silver. More information about that here.
All of this tells me that global markets are still in a state of flux as investors digest the Bank of Japan’s stimulus increase in keeping with the Fed’s backing away. Heavy-handed central bank stimulus seems likely to remain as the trend in force, although investors appear to be a bit more cautious than they were when the Fed was actively buying bonds.
And through year-end, all eyes are sure to be on the ECB – stay tuned.
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