Bad News – Global Stocks Surge Most Since 2012 on Stimulus Bets, Oil Rally

Week 4, 2016

This week’s newsletter starts with a strange subject. Why would I say bad news when the markets are rising again? 

It’s bad news for people who want to invest, as they will get lesser units for the same money, and good news for those who want to sell, as they will get more fund value.

Timing the market vs Time in the Market

A lot of small investors spend a lot of time — far too much — worrying about their investments. They worry about whats happening to their money today as opposed to thinking about it when they need the money.. 

What happens next is all too predictable. One position rises and they pat themselves on the back. Another one falls and they grumble and blame “the market” or some equally nefarious force in the background.

Then, a familiar pattern appears. Fearful of taking more losses, the investor begins to focus on the losers in the bunch. For a while, the winners offset the losers. Then the paper losses mount and the pressure is on.

Just when things are at their worst — the whole portfolio is negative for the year! — the investor decides to cut his or her losses. The dog gets sold. 

Why time in the market works

Over those years, the dividends pour in slowly every year. That money is reinvested automatically. Likewise, earnings growth is steady over the long run as markets rise over time. This translates into steady appreciation across the whole market. And, just like that, you compound your money, year in and year out, just by investing and holding without fear.

What’s Happening in the Markets this week.

Global stocks surged the most in 3 1/2 years, as U.S. equities joined a rally that pushed oil to its best two days since 2009 on speculation that central banks will expand stimulus measures to counter turmoil in financial markets. Haven assets from Treasuries to gold retreated.

MSCI Inc.’s gauge of the world’s equities climbed 2.6 percent as benchmarks from Asia to Europe and America rebounded from one of the worst starts to a year on record. The Standard & Poor’s 500 Index capped its best day in six weeks. 

European shares enjoyed the biggest two-day rally since 2011, while the euro fell to a two-week low on the European Central Bank’s signal it may bolster economic support. Asian stocks climbed the most since September on speculation Japan and China may also take steps to calm markets. Yields on 10-year Treasury notes rose above 2.05 percent.

The turnaround in sentiment came amid signs central banks may be prepared to act after $7.8 trillion was erased from the value of global equities this year on China’s slowdown and oil’s crash. Diminished inflation expectations and a strengthening yen are seen as increasing pressure on the Bank of Japan to enlarge stimulus at it's meeting next week. 

China will keep intervening in its equity market to “look after” investors and has no intention of further devaluing the yuan, Vice President Li Yuanchao said.

Stocks

• The S&P 500 jumped 2 percent at 4 p.m. in New York, leaving it higher by 1.4 percent in its first weekly advance since this year. The gauge pared its drop in 2016 to 6.8 percent, and it remains 11 percent below its all-time high set in May.
• The Dow Jones Industrial Average climbed 1.3 percent, with gains tempered by the biggest one-day slide in American Express Co. since 2009.
• The Stoxx Europe 600 Index rose 3 percent, rallying 5 percent in two days. The index advanced 2.6 percent in the week after rising the most in a month yesterday following Draghi’s indication that monetary policy will be reviewed as early as March. He reiterated his stance in Davos on Friday.

Emerging Markets

• The MSCI Emerging Markets Index climbed 3.3 percent, erasing this week’s losses. The gauge closed at the lowest since May 2009 on Thursday, sending valuations to the cheapest since March 2014.
• The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong advanced 3.4 percent. 
• Equity indexes in India, South Africa, South Korea, Poland, Turkey, Hungary, the Czech Republic and the Philippines climbed at least 2 percent. 
• Russia’s Micex Index added 1.8 percent.

Commodities

• Brent crude rose 8 percent to $31.60 a barrel on the ICE Futures Europe exchange. Prices headed for an 13 percent two-day advance, the biggest since the end of August. In New York, West Texas Intermediate crude climbed 8.1 percent to $31.93. Front-month futures have jumped more than 19 percent after the February contract expired Wednesday at $26.55 a barrel, the lowest settlement since 2003.
• U.S. natural gas headed for a weekly gain as a snow storm approached the eastern U.S. Futures for February rose 2.3 percent this week and added 0.5 percent on Friday at $2.149 per million British thermal units.

Currencies

• Risk is back in vogue for foreign-exchange traders after Draghi’s hint of further monetary stimulus helped fuel a rally by currencies from commodity-exporting nations.
• The ruble surged from a record low, riding oil’s gain to end a turbulent week that prompted the central bank to signal it stands ready to rein in the widest currency swings in emerging markets. A gauge of exchange rates for 20 developing nations rose 0.9 percent.
• The euro and yen were set for their biggest weekly drops this year as traders braced for more stimulus measures after a global market rout strengthened the currencies.
• The yen is poised for its biggest weekly drop since November. The currency was down 0.9 percent, extending its weekly decline to 1.5 percent. The euro fell 0.7 percent against the dollar. Monetary easing tends to debase the value of currencies.

Bonds

• The 2016 Treasuries rally slowed this week on concern yields that fell to within about half a percentage point from a record low made the market too expensive for some investors. Benchmark 10-year notes were on track for their first two-day losing streak this year, as rebounding stocks and oil prices curbed demand for haven assets.
• Italian and Spanish government bonds fell, reversing earlier gains. Securities from Portugal rose after a recovery in oil prices encouraged demand for riskier assets.

Capital & Yield Guaranteed Savings Plan in Focus - 

Regular savings plan - Invest in the S&P500 regularly and get a minimum of 140% of what you put in at the end of the term, or the actual market performance whichever is higher.

Hint -

• Warren Buffett recommends investing in the S&P500 to Lebron James, a basketball player
• The S&P500 has averaged 12.98% per annum since the last 25 years.

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