Fisher Investments Editorial Staff
Media Hype/Myths

The Great Global Disconnect: Headlines Versus Data

By, 10/24/2014
Ratings224.295455

While many headlines and sentiment have shown their skeptical streak lately, the data just don’t seem to want to cooperate and collapse. In fact, what we see in comparing sentiment and recent data seems much more like what we’ve seen during the five-plus year course of this big bull market.

First, let’s take a trip around the World Wide Web and assess the economic headlines grabbing eyeballs. All these headlines hit in the last two weeks:

Most of the theses underpinning these articles are very well known to investors: China faces a big slowdown—a hard landing—which will ripple globally; the eurozone is an economic quagmire; the US can’t grow alone; global growth is faltering; did we mention the eurozone is an economic quagmire? Economists have their standard prescriptions: Fiscal stimulus; don’t hike rates yet!; more (misguided) quantitative easing; weaker currencies; debt forgiveness.

Fisher Investments Editorial Staff

Misinterpreting Volatility, Economic Edition

By, 10/23/2014
Ratings214.261905

The recent volatility has not only given some investors pause, it caused economists and academics to speculate and ruminate on what it might foretell about the economy. Which the media has now picked up on, spinning the yarn that investors’ concerns about volatility would beget a weaker economy, in turn creating more volatility for markets. While stocks are a forward-looking economic indicator, they aren’t perfectly rational in the short-term. Volatility is often just markets being markets. It doesn’t necessarily reflect economic conditions, much less create them.

Many see the latest round of swinging stocks as evidence the weak global economy is entering a new and more uncertain stage, including monetary policy shifts that might conflict, slowing growth in pockets of the globe and even health fears. They point to recent sharp shifts in the Chicago Board Options Exchange’s Volatility Index (VIX)—which surged to a 28-month high last week, then plummeted at least 10% per day on October 16, 17 and 18—then rose the same amount the following trading day.[i] Many see the VIX as the uncertainty index—“The Fear Gauge.” (Nevermind that this is a fallacy, because the VIX merely attempts to measure the magnitude of future moves, not the direction.) The presumption is that with rising uncertainty/fear/VIX comes a near-inability for businesses to plan for the future.

The Kansas City Fed added some academic firepower to the issue, too. They published a paper September 4, suggesting spikes in uncertainty slow growth and hiring. The VIX is their uncertainty gauge, and they wag an accusatory finger at the sharply rising readings in 2011, 2012 and 2013. Hiring, they found, slowed during the volatility. They argue the effect didn’t go away as fast as the VIX fell, suggesting to them a lingering fear that weighed on the economy. In theory, uncertainty is bad for business and stocks. So you might presume there is some underlying truth to the notion today.

Fisher Investments Editorial Staff

Moving Averages Don’t Move Stocks

By, 10/22/2014
Ratings234.086957

After a big surge to close Tuesday at 1941.28, the S&P 500 Price Index easily surpassed an average of its closing prices over the last 200 trading days, 1908.[i] To many, that’s trivia. But to bullish technical analysts, it’s confirmation—time to breathe a sigh of relief—the market’s bounce back is real! The 200-day moving average is a widely watched gauge for chart-lovers, and since the S&P fell through it recently, it has been a source of great consternation for some. But in our view, using stocks’ 200- (or any period, really) day moving average to predict future direction is pure folly. Past performance—whether smoothed, averaged or other—does not dictate the future, as the S&P’s recent ride (again) shows.   

For the unfamiliar, the 200-day moving average is a very common technical indicator. Broadly speaking, proponents argue if the S&P 500 is above its 200-day moving average, it should continue rising. If it falls through this average, look out below. Many cite instances when the 200-day moving average was broken during bear markets and, sometimes, corrections. But that is just kind of a function of longer-term average meeting shorter-term sharp move. It isn’t predictive, just a result.

Overall, the rule that breaking the 200-day moving average predicts bad times ahead doesn’t pass the logic test. If the S&P 500 staying above its 200-day moving average indicates future gains, stocks should never fall. Likewise, the S&P falling below its 200-day moving average would mean stocks would never rise. Both statements are quite obviously faulty, but when the S&P fell towards—and ultimately breached—its 200-day moving average last week, many technical analysts saw stocks entering a longer-term downtrend. However, unless you define “longer-term downtrend” as seven trading sessions, we’d say those concerns were a teensy bit off. (Exhibit 1)

Fisher Investments Editorial Staff
Commodities, Media Hype/Myths

About Those Falling Commodity Prices

By, 10/21/2014
Ratings444.136364

Here is a scary story you may have heard this month: Commodity prices are tanking as Asia’s demand for crude oil and industrial metals dives, signaling a global economic slowdown. It has appeared, with varying degrees of detail and hyperbole, here, here, here, here, here, here and here. Some infer bad things from charts like Exhibit 1. Others use anecdotal evidence and rhetoric. We don’t think either approach—or the thesis—matches reality, however. Take a deep data dive, and you’ll see a far more boring, benign reason for falling prices: Supply is up way more than demand, which isn’t plummeting (contrary to widespread belief).

Exhibit 1: Select Commodity Prices Year-to-Date

Fisher Investments Editorial Staff
Behavioral Finance

Amid Volatility, Beware Your Inner Investing Demons

By, 10/20/2014
Ratings324.65625

Ebola, deflation, the Fed (!), bond market liquidity, technical indicators and more. The media seems obsessed with hunting down larger explanation for recent volatility. The more obsessive they get, the more likely investors get caught up in all the noise, increasing the risk their brains get the best of them. Take note: Now is a time to be conscious of your inner investing demons—the kind that can cause you to act counter to your long-term goals. Recognizing these pitfalls is a key step to keeping them in check.

Year to date, the MSCI World Total Return Index has closed more than 1% up or down 18 days.[i] Of those 18, five came in October’s 13 trading sessions, and two had intraday swings of greater than 1% (one was greater than 2%) this tally doesn’t capture.[ii] Friday continued October’s choppy start, with the MSCI World jumping +1.3% (yes, big up is still volatility). At one point, the global gauge had fallen -9.3% from its peak.[iii] After Friday’s big bounce, global stocks were -8.1% below the peak.[iv] Will they fall further? No one can know, in our view. There is no way to tell if Friday’s bounce marked the end of the short-term dip. We’ll know if markets avoided the first technical correction since 2012 only in hindsight.[v] But we do know when volatility runs higher, it often triggers humans’ innate fight-or-flight instinct. This is a useful evolutionary reaction when you are trying to avoid being a wild animal’s lunch, but it isn’t helpful in markets, which require rationality. Maybe you’re above making such errors. That’s possible. But at the same time, it doesn’t hurt to review some typical mental errors so you can learn from others’ mistakes and hopefully avoid making them.

Recency bias is one pitfall many investors succumb to when markets get rocky. Recency bias is the tendency to take very recent market behavior and extrapolate it forward, sometimes to degrees most people would think irrational when coolheaded. It’s easy to see how you might get engulfed by this today, as headlines proclaim, “October’s Wild Ride Isn’t Over Yet” and attempt to explain “Why All This Market Volatility Is Here to Stay.”

Fisher Investments Editorial Staff
Media Hype/Myths

Did a Fed Waffle Cause Thursday’s Rebound?

By, 10/17/2014
Ratings324.328125

This investor is putting Thursday’s market action under a magnifying glass. Photo by Comstock.

We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December.…

Christopher Wong

Four Tips for Retirement Investing

By, 10/16/2014
Ratings1214.202479

Retirement should mean more time to relax, not worry. Photo credit: Guillermo Murcia/Getty Images.

Retirement: the word strikes both joy and fear in the hearts of many long-term investors. Joy over the possibilities of post-working life: traveling, pursuing new hobbies and/or spending more time with family and friends. Fear due to all the unknowns: How much should I be saving?; Will I have enough to retire when I want?; What if I run out of money during retirement? The media exacerbates the fear with headlines screaming how unprepared Americans are for their golden years. But retirement investment needn’t intimidate. Now, ask most financial professionals how to prepare, and you’ll probably get a cliché answer—Save More! But here are four less-often-shared tips to get you started—tips equally applicable if you’re far from retirement or already in it.

Fisher Investments Editorial Staff
Inflation, Media Hype/Myths

Why We Don’t Fear Deflationary Doom Is Here

By, 10/16/2014
Ratings474.404255

Stocks had a wild ride Wednesday, with the S&P 500 Price Index down as much as -3% before climbing back to finish the day down just -0.8%.  Perhaps the correction many have long awaited is here—at one point, the S&P 500 Price Index was about one percentage point removed from correction territory (10% lower than a prior high point)—but it’s only clear in hindsight. Such moves are sentiment-driven and tend to come and go fast. There is usually a host of negative headlines, surrounding a spooky story or stories. But corrections can be caused by virtually anything. Or nothing. Such headlines abound today.

Let’s consider one of the day’s big fears: global deflation. To many observers, the evidence prices are about to spiral downward is stacking up. Chinese consumer inflation slowed to just 1.6% y/y in September—the lowest since 2009—and Chinese producer prices slid faster, hitting -1.8% y/y. September US producer prices fell -0.1% m/m. UK CPI slowed to 1.2% y/y, also the slowest since 2009. 10-year US Treasury yields briefly dipped below 2%. Oil prices continued tanking.[i] Market-driven future inflation gauges, including five-year US TIPS spreads and the eurozone’s five-year/five-year inflation swap, are falling. German inflation is stuck at 0.8% y/y. The eurozone’s final September inflation estimate hits Thursday, and no one expects improvement from the 0.3% y/y first read. 

Two primary interpretations emerged from this data bonanza. One, the slow ebb in prices will be a self-fulfilling prophecy, and deflation will choke off the global expansion. Two, low inflation/deflation will make debt more burdensome—another growth headwind. These are big, popular, scary stories, but we don’t think either carries much weight—problematic deflation doesn’t appear to be in the cards.

Fisher Investments Editorial Staff
Across the Atlantic, Media Hype/Myths

Return of the Euro Crisis’ Ghosts

By, 10/15/2014

With volatility back, many seek to explain what has amounted to quite a back-and-forth October. And it seems many settled on recent developments in Europe as the culprit. While possible, a quick glance at Europe’s recent headlines might have you thinking it’s 2011 or 2012. In our view, fears around the eurozone likely lack the teeth to materially bite this bull. The questions may be slightly different now: It’s more, “How does the eurozone avoid a ’lost decade of growth?” than warnings of the imminent collapse of the common currency. But most of the fears—and many of the specifics—are the same. These recycled false fears likely lack the surprise power to knock a global bull off track.

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Better Together, Spanish Edition

Fisher Investments Editorial Staff

The US Federal Deficit: Choose Your Own Fiscal Adventure

By, 10/13/2014
Ratings524.346154

Last week, the Congressional Budget Office (CBO) released its final projection for fiscal year 2014’s US federal budget deficit. And it is down again! They estimate the feds ran a $486 billion deficit in 2014.[i] The direction, even the magnitude of the dip, isn’t all that surprising—the deficit has fallen for some time. However, it still managed to attract plenty of debate. Why? The deficit is a frequently kicked around political football, and this time there is something in it for everyone. But we’d suggest ignoring all the noise and taking the figure for what it is—a result of a growing economy!

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This year’s reduction isn’t a new trend—aside from a teensy uptick in 2011, the deficit has been drifting since 2009’s peak—falling steeply in 2012 and 2013. Since 2009, the deficit is down 65.6%. Exhibit 1 shows the deficit’s progression over the past decade in dollars. Exhibit 2 shows it as a percent of GDP, down from 9.8% to 2.8%.[ii] (Exhibit 2)

Fisher Investments Editorial Staff
Reality Check, Media Hype/Myths, Behavioral Finance

Putting Stocks’ Zigzags in Broader Perspective

By, 10/10/2014
Ratings1934.062176

After a big, volatile bounce back Wednesday, in which the S&P 500 surged 1.8%, negativity struck US markets on Thursday, with the S&P 500 down 2.1% on the day.[i] Since October began, the S&P has swung more than 1% up or down five times (two up, three down). The back-and-forth is rather predictably spurring some eye-catching headlines. Here is a small sample so you get the flavor:

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However, all these headlines look at either one day or this month’s seven trading sessions under a microscope. A broader view can add some very valuable perspective.

Fisher Investments Editorial Staff
Politics

Voting For Gridlock

By, 10/09/2014
Ratings374.162162

Editors’ Note: Our discussion of politics and elections is purely focused on potential market impact. Stocks favor neither party. Believing in the market/economic superiority of one group of politicians over another can invite bias—a source of significant investment errors.

Midterm elections are less than a month away, and you know what that means: Cable pundits are earning some massive overtime. This is the home stretch! A time for grandstanding, blathering, mudslinging and other good old-fashioned family fun! Now if you’re into this sort of thing, it can be entertaining political theater. If you aren’t, you are quite possibly sick to death of the rancor and just want to know whether stocks will be happy with the results. If you are in the latter camp, we have good news: You can tune out the noise, because nothing in these final weeks means very much for stocks—whether campaign hijinks tip Congress one way or preserve the status quo, it is overwhelmingly likely we get more gridlock, which stocks love.

Over the next four weeks, you’ll see no shortage of articles or TV reports claiming the contest is certain to go one way. These are a guesses, and useless ones. Campaigns’ last legs have too many unknowns, and these races are too close to call. Take the House. On the one hand, Republicans would seem to have an edge since incumbents are hard to beat (Eric Cantor notwithstanding). The majority of the 47 total open House seats belong to the Republicans in the present House. However, of these 47, only about 18 Republican seats and 7 Democratic seats were really in play at the beginning of the year. Cantor makes 19. To seize the House, Democrats need to win all these open seats (or the lion’s share and knock off a few incumbents) and about half are in traditional Republican strongholds—the sweep is unlikely. Possible! But not probable. The Senate is sort of the reverse of this. Democrats (including Senators Sanders and King, independents who typically poll with the Democrats) have a 55-45 majority. The Republicans need six to win and have the structural advantage, with fewer seats to defend in traditional Democratic territory. But they’d need a near-sweep of vulnerable Democratic seats—two in states where they’re trying to defend a governorship (South Dakota and Alaska). They also have more state houses to defend in blue states—including three where they’re also trying to nab Senate seats (Iowa, Michigan and New Mexico). Those governors’ races could divert GOP funding away from the Senate races, perhaps counterbalancing their structural advantage. In short: The Senate could change hands, but it’s anyone’s guess whether it actually does.

Fisher Investments Editorial Staff

IMF Sees 99% Chance Growth Continues, Projects Acceleration

By, 10/08/2014
Ratings384.552631

Why the long face? The global economy is growing! Photo credit: Bloomberg/Contributor.

“Big Supranational Sees Global Growth Pickup, Recession Risk Less Than 1%: Go World!” That would be the headline we’d plop on a report of the IMF’s updated global economic outlook, which forecasts a repeat of 2013’s 3.3% global growth this year and acceleration to 3.8% next year. However, this forecast happens to be a bit lower than the IMF’s last missive. And it’s titled “World Economic Outlook: Legacies, Clouds, Uncertainties.” And it’s published by an outfit whose leader says the world economy is entering the “new mediocre.” So the common interpretation runs the gamut from pretty blah to dire. But the IMF’s downward-revised forecast shouldn’t dampen investors’ view of a growing global economy—dour spin doesn’t equal dour reality.

Fisher Investments Editorial Staff
Currencies, Media Hype/Myths

Eight Charts to Show Why the Strong Dollar Won’t Knock Earnings

By, 10/07/2014
Ratings434.186047


King Kong wreaks havoc. “King Dollar” doesn’t. Photo by Hulton Archive/Getty Images.

Well that didn’t take long. Just three weeks ago, headlines were all “Rah Rah Strong Dollar U-S-A! U-S-A!” Now they’re like this: Surging dollar may be triple whammy for US earnings. King dollar question mark for earnings and stocks. The strong dollar’s risk to 4Q earnings and beyond. Surging dollar may destroy US company earnings. Latest threat to corporate earnings: the almighty dollar. Their logic: A stronger dollar makes exports more expensive, making overseas business less profitable for globalized firms.[i] However, historically, there isn’t much (if any) evidence backing this case: A strong dollar isn’t inherently bad for US earnings, trade or stocks.

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Recent Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

The Great Global Disconnect: Headlines Versus Data

By, 10/24/2014
Ratings224.295455

The global economy continues to grow against a backdrop of fears it won’t. 

read more
Fisher Investments Editorial Staff

Misinterpreting Volatility, Economic Edition

By, 10/23/2014
Ratings214.261905

Instead of recent volatility, where should investors really look to gauge what is in store for the US economy?

read more
Fisher Investments Editorial Staff

Moving Averages Don’t Move Stocks

By, 10/22/2014
Ratings234.086957

The S&P 500’s 200-day moving average’s recent moves highlight its limitations for investors.

read more
Fisher Investments Editorial Staff
Commodities

About Those Falling Commodity Prices

By, 10/21/2014
Ratings444.136364

Some say falling oil and metals prices are a sign global demand is sinking, but a closer look suggests the truth is much brighter.

read more
Fisher Investments Editorial Staff
Behavioral Finance

Amid Volatility, Beware Your Inner Investing Demons

By, 10/20/2014
Ratings324.65625

With volatility up, investors should be conscious of how their brains may blindside them.

read more

Global Market Update

Market Wrap-Up, Thurs Oct 23 2014

Below is a market summary (as of market close Thursday, 10/23/2014):

  • Global Equities: MSCI World (+0.8%)
  • US Equities: S&P 500 (+1.2%)
  • UK Equities: MSCI UK (+0.2%)
  • Best Country: Sweden (+1.4%)
  • Worst Country: Japan (-1.2%)
  • Best Sector: Energy (+1.4%)
  • Worst Sector: Consumer Staples (-0.2%)
  • Bond Yields: 10-year US Treasurys rose .06 to 2.27%

Editors' Note: Tracking Stock and Bond Indexes

 

Source: Factset. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.