First let me state, that I am not a Stock Market Analyst, just a Middle School Math Teacher. However I do study trends, and one trend I have paid close attention to lately is the trend of what the stock market may do in September to October 2015. Before I begin let me give you an overview of the reasons why I feel we are pointing toward a down trend, a.k.a. a bullish market. This being why I have moved all of my I.R.A.'s to fixed accounts.
The stock market has been moving steadily higher since bottoming in March 2009, Remember those days, when even low-risk investors were losing most of their retirement funds? Since that time, The New York Stock Exchange (NYSE) is up 165%, and is in record territory, while the NASDAQ is up 275%. Our economy is not this strong yet, considering we have a National Debt of $18.3 trillion, with a "T".
The most popular stock market indices have followed a similar trajectory. The S&P 500 is probably the best overall index when it comes to measuring the health of the U.S. economy, because it captures approximately 80% of the available market capitalization.
The S&P 500 climbed 8.1% in 2012 and 30% in 2013. It’s up 12% year-to-date and has climbed more than 210% since early 2009. In August 2014, it broke through 2,000 for the first time ever and is closing in on 2,100.
Even when the stock markets are in full correction mode, the reversal is short-lived. In late September, over the span of three weeks, the NASDAQ and NYSE were both in correction mode, having given up more than 10% of their value and erasing all of their gains made in 2014. Both markets rebounded in short order, soaring back during the latter part of the month, fueling investor optimism.
Remember, stock markets are only as strong as the companies within them. On the surface, all looks well, but it isn’t. That’s because the U.S. economy, while improving, is extremely vulnerable. So maybe the idea of a major stock market collapse or correction in 2015 isn’t that big of a stretch.
The U.S. unemployment rate may have slipped below the six-percent threshold, but a large number of Americans--roughly 12%—remain underemployed. Inflation is on the rise, except at the gas pump, which could change, after 2016. In the workforce, wages have been flat and, perhaps not coincidently, approximately 15% of the U.S. population is on food stamps.
Personal spending may be accelerating, but so too are debt levels. We may be spending, but we aren’t paying with cash. As the world’s biggest economy and largest consumer market, 71% of the country’s gross domestic product (GDP) came from consumer spending in 2013. All things considered, this is not a recipe for sustainable growth, one might even say it is "inflated growth" which will eventually pop. Coupled with the fact that we are in the seventh year of a market trend. (View the Picture below).
In November 2008, the Federal Reserve stepped in with its generous bond-buying program (QE) to help kick-start the economy after it slipped into a recession. Artificially lowering the short-term lending rate to nearly zero was supposed to make banks lend more money to businesses and people.
The ultra-low-interest-rate environment has made it cheaper to borrow money—and is recognized as being the fuel that has propelled the stock market higher. The Federal Reserve has hinted it will start to wean investors off cheap money in 2015, when it begins to raise interest rates.
Raising interest rates by just 50 basis points could have a serious, negative impact on the broader economy and, by extension, the U.S. stock market. Continued economic challenges in the eurozone and Asia will also have a detrimental affect on the U.S. stock market.
Not to mention geopolitical tensions between Russia, Ukraine, and the entire euro-zone; icy relations between the U.S. and Russia; growing issues between China and the U.S; and concerns arising between China and Japan, all will play a part of what I see as a market downturn, but remember, I'm just a Middle School Math teacher.