Despite an impressive recovery from the September market meltdown, the stock market again is in negative territory for the year and possibly heading lower.
The U.S. market fell almost 4% during the week of Dec. 7 and continues to head lower today. The main culprits are the same that have bedeviled the market all year: the threat of higher short-term interest rates, and falling oil and commodity prices.
The Federal Reserve has been threatening to raise short-term rates all year. Market odds makers believe it will finally do so on Wednesday at the conclusion of a two-day meeting. What’s troubling the markets is not just the prospect of higher U.S. rates, but the disconnect between U.S. rates and foreign rates – European and Asian central banks have either held their rates steady or reduced them this year. This is already causing pain in the United States. Higher rates here have investors buying dollars, which has pushed up its value and made U.S. exports less competitive.
Meanwhile, Saudi Arabia has damaged the U.S. energy industry by pumping large amounts of crude oil even as oil prices have plummeted. The Saudi’s apparently want to tamp down the growing oil and gas fracking industry in order to maintain market share. So far the strategy is working, but it is hurting the U.S. economy, where high paying jobs are being lost and the oil and gas industry are in a slump.
Whether or not this is a short-term market decline or the beginning of another bear market is anyone’s guess. Investors who want to play the odds should remember that the U.S. stock market is twice as likely to go up in any one year as it is to go down, and that applies no matter what has happened the previous year.
Statistics compiled by The Hulbert Financial Digest show that since 1897, the Dow Jones Industrial Average has gone up 66% of the time after a year in which it has had a 20% gain. But it has also gone up 65% of the time following a year when markets declined. And, in all years since 1896, it has gone up 66% of the time.
Richard Schroeder, CFP®, Dec. 14, 2015