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January 28 2014

Was it a stutter step or have markets lost their balance?

Anybody who knows football can tell you a lot goes into every play. Strategy, practice, game review, and preparation all affect outcomes, as do decisions and execution during games. Many, many factors influence gains and losses on the field. Similarly, numerous issues affect the performance of stock and bond markets – a fact that became abundantly clear when pundits tried to explain last week’s market downturn. Here are a few of the things which may have helped put investors on the defensive last week:

  • Fears of a China bubble: According to Barron’s, a dip in the nation’s manufacturing index stirred experts’ fears China may be experiencing a credit bubble that is creating property and infrastructure bubbles. If this proves true and the bubble bursts, the repercussions may be felt throughout global markets.
  • Concern about Federal Reserve tapering: The Fed has begun to pursue a less stimulative monetary policy and that has some worried about growth, especially in emerging countries which rely on foreign currency to finance their deficits, according to The Washington Post.
  • Anxiety about emerging markets resilience: Giving weight to concerns about the impact of changing Federal Reserve policy, currencies in Argentina, Venezuela, South Africa, and Turkey lost value late last week. The New York Times said rising interest rates may increase borrowing costs triggering painful readjustment periods in some emerging markets.
  • Unease over unemployment: Reuters suggested stronger economic growth in the United States, Japan, and Europe
  • Lack of enthusiasm over mixed earnings: Fourth quarter earnings reports have been roughly in line with the mixed results reported throughout 2013. Sixty-three percent of companies’ earnings beat analysts’ expectations, 12 percent were in line, and 25 percent came in lower than expected.

So, is this a correction? Or, has the bull market concluded its run? You may as well ask whether the Broncos or the Seahawks will win on Sunday. Nobody knows for sure.

  • Data as of 1/24/141- WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)-0.026-0.03119.8%0.11516.4%4.5%
  • 10-year Treasury Note (Yield Only)2.7N/A1.83.42.64.1
  • Gold (per ounce) 1.45.5-24.2-1.96.812.0
  • DJ-UBS Commodity Index1.51.0-10-7.62.1-1.0
  • DJ Equity All REIT TR Index-0.7 2.0 0.09.921.08.5

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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