5 Minute Market Commentary – November 30, 2015

FormulaFolio's Chief Investment Strategist Jason Wenk provides an update on the market

5-Minute Market Commentary // November 30, 2015
Posted December 1, 2015

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, finances should be simple, not complicated.

Market Update
In a light trading, Holiday week, most markets were just a hair positive. With just a day left in the month, it looks like the month will finish similarly. No fireworks seems to be a good thing considering the very up and down nature of the last three months, though December will prove pivotal in order to for 2015 to finish with more than just very modest gains for the year.

Screen-Shot-2015-11-02-at-2.41.49-PM-2

Lesson to be learned: One week up, one week down, one week flat. Markets can do this in the short term, which is why we have to invest for the long term.

FFI Indicators
FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There were no changes to our economic or Bull/Bear indicators this week. Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term future (think <18 months).

Screen-Shot-2015-11-30-at-4.37.43-PM-700x259

Weekly Comments

I hope everyone enjoyed a safe and happy Thanksgiving! With more holidays right around the corner, it’s easy to coast through without watching the markets, but this year I think you’ll want to pay a little extra attention. If December rallies, 2015 will finish fairly well. If December fizzles, we might have our first losing year in US Stocks since 2008.

As pointed out in last weeks comments, the markets really need to break to new highs to officially re-form an uptrend. If they can’t, more volatility and further declines are very possible. Much of December traditionally hangs on a phenomena known as “The Santa Claus Rally”. This rally is dependent on shoppers moods heading into the holidays and the early reports on retailers of such, as well as general investor and fund manager happiness to enjoy the holidays. Not real scientific, but expect to hear a lot about this over the coming month from financial media. For more reading on this, see the links below:

http://www.investopedia.com/terms/s/santaclauseffect.asp

http://www.cnbc.com/2015/11/22/are-stock-markets-going-to-rally-around-christmas.html

http://www.sfchronicle.com/business/networth/article/Good-news-for-investors-History-favors-a-Santa-6665912.php

What do we think? Smart investing says we’re still in a vulnerable (though slightly more optimistic than pessimistic) phase of the markets. While incredibly boring, the smart investor should be balanced, but slightly conservative. Until there is a more meaningful trend the next move is anyones guess, and guessing is not a smart investing philosophy. If a new bull market trend forms, there’s a good chance it will last awhile, so there will be plenty of time to make up for what has been a rather frustrating 2015.

More to come soon. Stay tuned.

Regards,

Jason Wenk
Chief Investment Strategist