March 14, 2016

The major stock market averages opened modestly lower this morning (Dow -7 pts; SPX -.24%). Energy, healthcare and materials sectors are leading the market lower. Oil prices are down today; WTI -4% to about $37/barrel. Iran confirmed it will not agree—with Saudi Arabia, Russia and others—to freeze oil production at January levels. The country’s goal is to boost production from its current level around 2 million barrels per day to a target of 4 million barrels. Most other commodities are lower (Bloomberg Commodity Index -1% on the day and up slightly this year). Bonds are modestly higher as yields tick lower. The 5- and 10-year Treasury yields are trading at 1.47% and 1.96%, respectively. Speaking of bonds, “junk” or high-yield bonds are recovering from a 1-year rout. The SPDR High Yield Bond ETF (JNK) is actually up 2% for the year. Oil’s convincing move back over $30/barrel is helping to ease credit conditions. In addition, economic data has come in better than expected lately.

Charles Schwab’s chief investment officer says stocks are more likely to move back to all-time highs rather than descend into a cyclical bear market. She acknowledges higher volatility, but says it looks like the risk of recession is decreasing. The “economy is probably OK here.” Of course, we don’t have to get a recession in order to push the stock market down 20%, and that’s a possibility. But at this point, she doesn’t believe that is likely. By the way, a Bloomberg article today asserted, “economic data around the world suggest the global economy is far from the recession environment that wiped almost $9 trillion off the value of equities worldwide this year through mid-February…”

Here is a look at expected economic (GDP) growth for 2016 around the world, sourced from the Economist: USA 2%; Canada 1.6%; Mexico 2.5%; Brazil -3.2%; Eurozone 1.5%; Russia -1.3%; Japan 0.8%; China 6.4%; Australia 2.5%; India 7.5%; South Korea 2.6%.


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