I understand how emotionally difficult it can be watching the stock market when 2015 was only up 1.5% and 2016 is down about 10% year to date.
However, the bigger question is: Are we moving into a recession or is this simply another market correction?
Here are 12 reasons why I believe we are only experiencing another market correction and not looking at the beginning of a new economic recession.
- Corporate insiders like Bill Gates and Warren Buffett are buying their own stock, as are top management at Auto Nation, Phillips 66, Tim Porcelli, Wayne, Barnes & Noble, CIT Group Inc., Glu Mobile, Plains All American Pipeline, Taylor Morrison Home Corp, and JP Morgan. This is always a good sign because these insiders are always looking to take advantage of situations where they feel the company’s stock is a good buy.
- First Trust Portfolios L.P. recently reported that the market has had a correction of one sort or another every year since 1980 and despite those corrections every year, during most of those years, the market ended up higher by year end.
- Corporate earnings: if you eliminate the 23 corporations in the energy sector that have reported earnings so far for 2015, earning from the other 352 companies are up 1% from a year ago. The market drop is not due to declining earnings, per se.
- Retail sales rose .2% in January which was better than most people expected. This is particularly impressive because gas station sales were down by 3.1% due to lower prices at the pump. Excluding gas stations, retail sales are up seven months in a row and are up 4.5% from a year ago.
- Retail sales are likely to accelerate because of the windfall savings consumers are receiving at the gas pump.
- Hourly earnings in 2015 rose by 2.7%.
- Initial unemployment job claims have been below 300,000 for 49 consecutive weeks now.
- Private payrolls grew by 216,000 individuals per month in 2015.
- The unemployment rate is down to 4.9% and full-time employment has grown by 2.5 million jobs, while part-time employment is actually down 120,000 jobs.
- Inflation has been averaging 2.1% year to year, which is very close to the Fed’s 2.2% inflation target. Including the huge drop in oil, the overall index is still up .7% in the past 12 months.
- The Federal Reserve remains willing to have an easy monetary policy. In her latest report to Congress, Federal Reserve chair Janet Yellen, indicated the Federal Reserve would more likely than not put off any rate hikes for awhile.
- We often hear that businesses aren’t allowed to borrow money from the banks; however, industrial loans grew by an annual rate of 3.6% in the past 13 weeks.
Based on the 12 reasons above, it is most likely we are experiencing an emotional correction in the stock market. It is very unlikely that in this environment the economy is moving into a new recessionary period. Therefore, it’s important that investors “stay the course” in their current allocation to equities or add to their equities if they are under-allocated. Getting out of the market at this point is likely to cause losses that can’t be recovered if you are not invested when the market goes back up.
You are always welcome to call or email with questions. If you would like a telephone call or meeting scheduled, please contact Cammy Newell at [email protected] or at 920-257-5163.