As the major focus has been on oil prices and specifically the impact of the new supply as Iran comes on stream, short-term traders (computer generated and not) have pushed volatility levels on financial markets higher playing on the fear of investors. Interestingly, not enough panic (or capitulation) yet to drive volatility to last August's levels.
After the Bank Of Canada's "wait and see" approach was revealed on Wednesday, yesterday, The European Central Bank suggested more Quantitative Easing for March and traders decided to use that as the catalyst to buy in short positions.
Oil is higher about 12.5% off of its lows, the Canadian dollar is back above $0.70 US and as it stands at the moment, the S&P 500 is approximately 4.5% off of its lows.
The Bank of Canada remains rather optimistic about the second half of 2016 (they were rather optimistic about the second half of 2015 at this time last year) but their track record has not been stellar. They keep pointing south and hoping that the optimism of the US Federal Reserve will play itself out.
While all this is going on, behind the scenes, the US jobless claims numbers are creeping higher:
Historically, declining jobless claims have been correlated with rising stock prices, but now that jobless claims are rising?
This is also data that may make the Fed less optimistic about the US economy in 2016.
Clearly, lower equity prices have brought them closer to being of better value based on projected earnings, the 10 year price to earnings ratio average for the S&P 500 is 14.2 times. When the market settles this week, the 12 month forward projected price to earnings ratio is going to be quite close to that number.
So is it time to buy yet (to get some of that better value)?
However with the global economic situation showing no signs of pulling out of the current malaise (IMF earlier this week lowered global growth targets and so also did the Bank of Canada) and the US economy seemingly unable to provide the impetus and under-performing on many levels, there could be further reductions to forecasted earnings, so it is likely prudent to remain cautious.
And so we shall.
If you would like to receive this blog directly to your email, please email:
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist