December 5, 2015
Weekly Market Outlook
By Keith Schneider
(Right: Seattle Gaming Convention Attendee August 2015)
The US equity markets ended the week very mixed but the message remained the same. The leading index continues to be the NASDQ 100, and much of the gains concentrated in the already top performers such as AMZN, NVDA, GOOG, and ATVI and NFLX. Smaller cap stocks that live in the Russell 2000 once again lagged closing down for the week about - 1.5% while NASDQ 100 (QQQ)closed up about what the IWM lost. SPY (SPY500) the key market benchmark closed virtually unchanged but only after Friday’s huge +2% up move.
Huge day to day swings in the market continue as central banks play out their next moves. The biggest surprise is that Draghi, the head of the ECB, announced that he is cutting back by half the next round of QE type easing which caused the euro to soar 2% against the dollar overnight.
This occurred as economic data here in the US came in strong, supporting the first rate increase since the great recession that began in 2008. The question of course remains how the central banks will muddle their way through the liquidity bubble and keep the equity markets stable. The steps by Draghi is a coordinated effort to manage global economy and the equity markets along with the Fed.
The unemployment rate stayed steady and non-farm payrolls data shows a growing economy as the number of full time workers increased. The naysayers can point to the participation rate and say the real economy is doing much worse as it remains at a 15 year lows. This is partly because baby boomers retire and those out of work have stopped looking for a job. Production by robots are a driving factor in the lower participation rate as well.
Adding more fuel to the naysayers’ rhetoric that the economy is faltering and on the verge of collapse is that inflation remains low and factory orders are in negative territory.
Old line manufacturing and jobs that are required to produce physical items are constantly on the chopping block or being shipped overseas. Of course collapsing energy prices has kept inflation at bay, as technology has increased production levels as well.
What really constitutes the real economy? Is an economy driven by a virtual world, reality? Ultimately, short term gyrations aside, over the longer term the valuation of stock prices converge with economic reality.
So in a world where technology and software code are driving profits in almost every industry, while the production of physical things become cheaper, driven by robots, the answer should seem obvious.
With the rate of change constantly accelerating, one of those changes is that the virtual digital world has become reality. Scalability is infinite. Real world profits come from virtual reality and look no further than the Google glass or the gaming world where virtual worlds collide with the actual. Leading stocks today are chip companies (NVDA) producing chips for video games and (ATVI) video game companies.
Energy prices are dropping and could stay that way especially if renewable and unlimited supplies such as solar energy hit the global markets in force. This week’s video we will focus on the technology sector, gold, the Euro and solar energy.
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