Stocks sold off and then rebounded to close the trading day near the flat line on Monday. While oil, which had been a key driver for stock market direction, was sharply down for the day, stocks in general fared better. The ‘new’ correlation seems to be with bonds, which sold off in the early part of the day before rebounding. Earnings season kicked into high gear as some 100 companies reported on Monday alone.
Investors should expect further volatility as earnings and economic news releases are sure to cause emotional overreactions. Tomorrow’s FOMC announcement will likely contain language that indicates that the U.S. economy can sustain 2 or more interest rate hikes, however that the Fed has chosen to hold off due to international concerns. The Fed is in quite a bind, as it absolutely wants to raise rates, but is (rightfully) fearful that such a move will further strengthen the dollar, thereby weakening the Chinese Yuan, which could cause a significant banking crisis in the worlds’ second largest economy. Moreover, given the challenges that Europe and Japan are facing, the negative impact on these economies is also undesirable. As such, we continue to believe that commodity prices will remain somewhat depressed, that the U.S. dollar will remain in its current trading range, and that if the Fed doesn’t raise in June, no hike in 2016 is a significant possibility. From an investors perspective this will mean that interest rates will remain suppressed, making high-quality dividend paying stocks attractive alternatives for those seeking income in a low-yield environment. Don’t miss this week’s Money Matters with Gary Goldberg; for stations and air times, please click here. Visit our website at www.ggfs.com for more details, including for a free, no-obligation portfolio evaluation.