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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

How Will 2015 End For U.S. Markets?

Stock-Markets / US Stock Markets Jun 18, 2015 - 01:50 PM GMT

By: AnyOption


Anyoption writes: Throughout the past several years, the bull has been running in U.S. markets; and while the bull is still somewhat running, it has definitely lost a bit of pep in its step. Simply put, we're not seeing the growth in 2015 that we saw over the past several years. Now the big question is, “How will the year end?” Unfortunately, I'm not sure we're going to see much positivity as the year closes. Today, we'll take a close look at leading indicators with regard to the health of U.S. and discuss why this year is likely to come to a bad close.

Investor Sentiment

One of the first places I look when determining the health of any overall market is investor sentiment. After all, investors are the key determining factor with regard to growth in any market. Unfortunately, investors don't seem to have a very bullish opinion of the market at the moment. According to the American Association of Individual Investors, investor sentiment is overwhelmingly bullish. Here are the results they've published from their most recent survey...
  • Bullish – Investors with bullish opinions of the market account for only 20% of respondents to the survey. This is down 7.3 percentage points from the last survey.
  • Neutral – 47.4% of respondents said that they have a neutral opinion of market conditions at the moment; this figure is down 0.8 percentage points.
  • Bearish – Finally, 32.6% of respondents stated that they have a bearish opinion on market conditions moving forward; up 8 percentage points.

Existing Home Sales

Because the health of the United States economy plays a crucial role in movements in the market, it's important to look at economic data when determining what to expect. In the case of existing home sales, things are looking very good at all. As a matter of fact, in the month of April, existing home sales in the United States fell by 3.3%. While this figure did see a more than 6% increase in the month of March, investors are pointing to the April decline as a sign that the United States economy is in trouble.

The Federal Reserve Is Also Going To Play A Crucial Role

One of the biggest conversations across investor platforms today revolves around the Federal Reserve. That's because the Federal Reserve plans to raise interest rates before the end of the year. This is a very important factor to keep in mind; and the reasoning for that goes back to the economic crisis of 2008 and 2009. In the depths of the financial crisis, the Federal Reserve enacted economic stimulus in an attempt to spur economic growth in the United States. To do so, they set a plan in place called quantitative easing. Essentially, this was a bond buying program that made stocks look more attractive to investors. Another major move made, and perhaps the most important move was that the Fed reduced interest rates to a record low 0.25%; where the rate has stayed since.

Low interest rates were sure to boost economic activity in the United States. After all, with lower interest rates, consumers and businesses would spend less money on loans. As a result, the United States would see a rise in consumer spending. Aside from consumer spending, we would see jobs growth in the U.S., thanks to businesses spending less on loans. The plan worked. Following the financial crisis of 2008 and 2009, the United States was one of the fastest economies to recover. However, the economic stimulus that sent the market into bullish mode will also likely be the biggest contributor to the bear market we're likely to see by the end of the year.

The reality is that when the Federal Reserve announced that it would be reducing interest rates, they also announced that the low rates were not to last forever. Instead, when the United States economy grew to a point of sustainable growth, the Fed would gradually start to increase the rate; bringing it to a normal level. Here we are now, several years later and that time has come. As mentioned above, the Fed has stated that they intend to increase their interest rate by the end of 2015. Many experts on the topic are expecting this to happen in September with 2 interest rate hikes by the end of the year.

While a Federal Reserve interest rate increase is long overdue, it's also likely to have an incredibly adverse affect on financial markets in the U.S. Think about why the interest rate was reduced in the first place. Now, consider that when interest rates are increased, the exact opposite is likely to happen. With higher interest rates, consumers will pay more money on interest for loans; leaving less money available for consumer spending growth. From a business perspective, higher interest payments means that businesses will have less capital to grow. Ultimately, this could lead to a slowing pattern in United States jobs growth and other crucial consumer and corporate indicators.

The Airline Industry Has Already Slid Into The Bear Market

The airline industry is incredibly important to watch. That's because when there's more money to be spent, more traveling happens; leading to growth in airline stocks and insinuating strong economic activity. Unfortunately, the airline industry isn't enjoying the fruits of the bull market anymore. As a matter of fact, it has slid into bear territory. Between an uneven balance of supply and demand and increasing fuel prices, airlines are having a hard time generating gains at the moment.

We're Seeing More Conversations Around Gold Investing

Looking at Google search trends, more and more people are typing in the 6 words, “Is it time to buy gold” than we've seen recently; insinuating that more and more investors are looking into safe havens. While the value of gold continues to struggle at the moment, investors know that the value of gold will likely grow by the end of the year as U.S. markets start to move further and further into bear territory; and there are plenty of experts on the topic explaining why now is the time to buy gold out there.

Tying This All Together

While US jobs growth looks relatively solid, just about every other factor I've looked into that plays a role in the growth of the U.S. economy and markets has yielded negative results. Considering the fact that the Federal Reserve is likely to raise its interest rate, coupled with the fact that economic signals show that the United States economy isn't as strong as we considered it to be last year, it only makes sense that we're likely to see bearish activity as the year ends. So, keep your eyes on the charts because we are likely to see a major slide.

Anyoption™ is the world's leading binary options trading platform. Founded in 2008, anyoption was the first financial trading platform that made it possible for anyone to invest and profit from the global stock market through trading binary options.

Our goal here at Market Oracle is to provide readers with valued insights and opinions on market events and the stories that surround them.


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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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