Mid 2015 Investing Status and Advice

It’s now the middle of 2015, and so far it’s been a lackluster year in stock investing (though the NASDAQ is up 7%). Here’s what the pundits are saying about this year, and the next 6-12 months.

Overall, here’s my assessment.

  1. Don’t expect big returns in the stock market for 2015. Count on 3-10% returns and pick good stocks which will increase more.
  2. Bonds are still low yields, and rate increase will move bond price down
  3. Still, your investments should be stable for 2015, unless you don’t diversify, balance your portfolio, etc.
  4. Keep some Cash handy to buy stocks on dips and protect your downside. Bonds aren’t yielding much anyway, so 10-20% cash in your portfolio isn’t a bad thing.

The US Economy is Growth Slowly and Steadily

GNP growth is projected to be 2 – 2.5%. If you want to, go ahead and complain, but please stop watching FOX News about how awful the economy is, and Jeb Bush is NOT going to increase long term growth to 4%. That’s just not sustainable.

The TRUTH is that in 2008-2009, things were horrible — housing crisis, bank failures, 10.5 unemployment, auto industry collapse, etc. etc. So growing steadily at 2-3% GNP growth is Excellent and the unemployment rate is 5.3% and projected to be 5% by the end of 2015. If the economy continues to grow at 2-3%, we’re in good shape, and wage growth is starting to happen — just look at all the company’s increasing their wages (McDonalds, Walmart, etc.) and states are raising the minimum wage too — just wish Congress would get on the bandwagon and at least raise the minimum wage to $10.00 (equals $20,000/year for a 40 hour/week job)

Inflation is Low

Not much really to say — it’s just below 2%, which is wonderful. It should pick up a bit as wages rise and unemployment continues to fall.

Analysts Project a 5-10% increase in Stock Prices for 2015

This projection has been the consistent consensus all years, and so far that’s what’s happened. We’re half way into the year, and S&P is up 3% and NASDAQ is up 7%. Yes the Dow is flat, which only represents 30 large industrial US companies, which have been growing slowly and some have indeed been effected by the strong dollar.

Strong Dollar is Effecting Profits

Yes, the dollar is strong. Were you complaining when it was weak? The stop complaining. Frankly, between you and me, if a company is blaming their earnings on the strong dollar — there are probably other issues with the company. You don’t really hear Apple talking about that stuff.

The Fed is Going to Raise Rates — Get over it (and they Should)

Chairman Yellen has been signaling an initial rate increase (a whopping 0.25%) for over 6 months, and the Federal Reserve hasn’t raised rates in over 9 years. She’s also said they will be “normalized” and raised slowly. This is LONG overdue, and super-low rates have helped with the economy for years. [SO WAKE UP CONGRESS — it’s your turn to use Fiscal policy to help the economy and stop trying to kill Obamacare.]

Anyway, when rates finally do go up, yes Bond Yields will rise. Bond prices will drop. The stock market will temporarily fall somewhat … and then investors will get over it and move on.

Greece and Grexit Will NOT Go Away

It’s a Catch 22. If Greece exits the Euro, it will affect the Euro, and Greece could have real economic issues for several years. But if they don’t exit, the austerity is slowly killing the economy anyway. Many economist know that going back to their own currency could be good, and devaluing that currency will work over time.

But what the heck does this small country have to do with the United States stock and bond market? In a word – UNCERTAINTY. Investors are just unsure what will really happen if Greece exits the Euro. Will the Euro go down further? Will countries like Spain follow? We just don’t know for sure. And UNCERTAINTY = RISK = VOLATILITY = lower stock prices overall.

Corporate Earnings are Ho Hum

That’s what you’d expect in a 2-2.5% growth GNP economy with a strong dollar. BUT — the experts know that while the broader stock market is FLAT — this is the time to pick winners — like FANG (Facebook, Amazon, Netflix, Google) which are all up HUGE in 2015. The healthcare sector is going strong (yes Obamacare helped get more people insured and helped these companies — which did pay the Gov’t a a bunch of money).

Bond Yields are LOW and Now Risk with Rising Rates

This is really troubling. Investing in Bonds has been paying 1-3% for about 5 years. And rates kept going down. And saving rates are basically ZERO. So when rates go up, we’ll get higher interest rates — RIGHT! But, bond prices will go down. The conventional wisdom remains to invest in short-medium term bonds until rates normalize in 1-3 years.

Bank stocks should benefit from rising rates, so look at those and the Financial ETFs.

China’s Stock Market DOES Effect the US Market

The Chinese stock market is down 30% in the past month. OMG!!! But wait — it was up 100% the prior 12 months. It’s called a correction, and it was a HUGE classic bubble — people were mortgaging their homes to invest in the stock market. Sound familiar — Can you say Tech Bubble of 1999 !!???

Again, there is uncertainty, and the Chinese economy is in the toilet. OMG — it’s only growing at 7%. Not bad for the world’s second biggest economy. And NO, stock price declines doesn’t translate to buying less iPhones — which some analysts were claiming. I ask you, Do you look at your stock portfolio before buying a new iPhone??? No. Perhaps if you’re buying a new house, car, etc., but remember the Chinese market is in correction mode. The Chinese government is trying to stop it, but they WILL NOT be successful — they don’t understand Capitalism and Capital Markets. The correction is about psychology, and they have to let it just happen.

 

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