Barack Obama will do everything in his power to keep the U.S. stock market up until the end of his Presidency. He inherited an economy that was in a recession, and his number one priority is to leave the U.S. better off “by every economic measure” than it was when he took office. Now before you jump out of your chair, let me stress that this is NOT a political commentary. These are simply observations by a money manager who has been watching the tape and the economy for over 18 years.
There are things happening in the U.S. stock market that have never happened before in history. Specifically, the traditional warning signs that lead to corrections continuously find a mysterious bid that props the market up. Why? Because we are in a liquidity driven market fueled by a globally coordinated effort to keep rates low and the markets high. Here are a few examples:
When the Federal Reserve announced the end of their third Quantitative Easing (QE) program on Wednesday, October 29, 2014, many market participants thought the U.S. market would fall into a correction, just as it had at the end of QE1 and QE2. However, something interesting happened. Less than 24 hours later, Japan stunned the financial markets by unexpectedly expanding their QE program. Almost as if the U.S. handed off the baton to Japan. It lead to a 200 point surge in the Dow Jones Industrial Average that day.
On November 10-12, 2014, China President Xi Jinping hosted President Obama to discuss a range of subjects, including “global cooperation” (according to the White House press release). On November 21, 2014, the People’s Bank of China unexpectedly cut interest rates, its first benchmark reduction in more than two years. It surprised the financial markets because most economies growing at 7.4% are usually not looking to cut rates. Since then, China has taken additional measures within their banking system to help boost credit and bolster their economy.
At their upcoming meeting on January 22, 2015, the European Central Bank (ECB) is widely expected to announce its own version of Quantitative Easing. At this point, it’s simply a question of how their QE will be tailored. Once again, it’s a “globally coordinated effort” with China, Japan, Europe, etc.
Even with the U.S. Federal Reserve out of the QE game, they can still bolster the markets by delaying any interest rate hikes. Most economists expect a hike at either the June or September Fed meeting this year. My feeling is not only will the Fed NOT raise rates in 2015, but they will not raise rates until Obama is out of office. Again, why potentially put a dent into the stock market and the fragile economy when you have come this far to make sure it will recover properly? Many say that the Fed will be behind the curve, but their number one priority is a sound economic recovery. In fact, the release of the Fed Minutes occurs in between their meetings every 6 weeks. They tailor the minutes and line up Fed speakers just in case they need to massage the markets if it declines too much in between meetings.
So what does all this mean to the average investor? As I have been telling my clients for the past 2 years: Stick with the trend and stay the course! Of course there will be pullbacks, shakeouts, and quick corrections along the way, however, we will most likely end 2016 near all-time new highs. The Dow Jones will be above 20,000 or even 25,000 (because it’s the most publically watched index and the public LOVES round numbers) and the Nasdaq Composite will eclipse its old March 2000 dot-com highs.
Let me reiterate that President Obama will NOT come this far just to let everything collapse. When he leaves office, he will most likely stress his 75 consecutive months of job creation, the total number of jobs created, the reduction in gas prices, and possibly having the best stock market record of any President. In fact, if you pay attention, he has already started doing this in his current speeches. These points tend to resonate well with the American people because both sides of the aisle care greatly about jobs and the economy.
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