Is It Over Yet? Two Weeks In, 2016 Feels Like Year of the Bear

With growing concerns over the price of oil, the slowing of the Chinese economy, and the Dow Jones Industrial sinking further, investors might be bracing themselves for a tough winter. According to global chief investment strategist for BlackRock Inc., Russ Koesterich, "What people are afraid of is this isn't investors overreacting, but it reflects a fundamental deterioration in growth." Growth is essential and as we see in the Chinese economy, growth seems to be slowing.

Now this news does not indicate that investors need to sell off everything rather this is part of a "re-valuation in the market." Some things could happen to ease tensions, where banks could step in, consumers could cut back saving on energy costs and spend more elsewhere, and growth in China could always pick up.

There's optimism among big companies such as JPMorgan Chase and Wells Fargo Funds Management LLC that the economy will improve. According to various employees at these companies, "The US economy looks pretty good at this point, and that credit quality across card and commercial lending businesses is as good as its ever been." A solid earnings season could get things back on track and we'd see gradual improvement in the markets.

Elsewhere, debt investors in the US are paying exceedingly high costs to protect against defaulting. China has used a significant amount of its foreign exchange reserves last month to stop the yuan from plummeting. The Fed has raised interest rates for the first time in almost a decade. While things seem dire, there can always be a revival, as Brian Jacobson of Wells Fargo Funds Management LLC commented, "We just really need to get through this drop of sentiment, and get back to fundamentals."  

Link: http://www.bloomberg.com/news/articles/2016-01-15/retail-sales-in-u-s-decrease-to-end-weakest-year-since-2009

The Rising Interest Rate Effect in the Stock Market

After having the first increase in the short term interest rates by the Federal Reserve last month in December, many had originally speculated that we would see another increase at the start of the new year at their policy meeting that will occur later this month. However, as discussed in this article by Jon Hilsenrath in the Wall Street Journal, there are multiple indicators from December that are making many believe that the Fed will have to put their plans on hold for this month. Despite adding 292,000 new jobs in December, U.S. industrial production declined and real GDP did not meet many expectations. However, what has been getting a lot of the media’s attention as of late is the decline in the stock market.

I think that it is important to keep in mind that the economy is doing well as a whole, but what worries many is the Fed’s rising interest rate and what effect it will have on the stock market. This is the case despite the fact that the rate is still extremely low. I believe that people’s wariness of the rising Fed interest rate and the effect that it will have on the stock market is playing a more significant part in the performance of the stock market than many realize. Investors know that the interest rate is going to continue to rise, they just don’t know exactly when yet with the Federal Reserve’s tentativeness concerning the decision and what the effect will be with each increase. As the interest rate rises, bonds are going to become a larger temptation to many, both because of their increasing returns as the interest rate rises and because they are looking like a much safer investment especially with the uncertainty currently in the stock market. We have already seen an increase in yields especially in corporate bonds as the Fed’s interest rate has increased. With the return on bonds barely exceeding inflation in the past years, bonds may be making somewhat of a comeback now that interest rates are rising.  

While I do believe it is important for the Federal Reserve to evaluate its decision on whether to raise the interest rates this month or to put it off until March, they need to rely on economic indicators in their decision rather than considering the decreasing stock prices which have gotten so much attention. I believe that there will always be an aspect of uncertainty in the stock market until the interest rate becomes stable again with no immediate expectations of interest rate changes. Many are currently worried about what the impact of the Fed’s interest rate will have on the stock market and whether there will start to be a swing in demand for bonds as they become increasingly enticing, so in one way I believe the sooner the Fed’s interest rate becomes stable the sooner the stock market can return back to normal. The only way I see the uncertainty in the stock market going away completely is once the Fed has settled its interest rate. The stock market is not necessarily the best indicator of the general economy currently because of the uncertainty I have discussed. This is why I think it is more important for both the Federal Reserve, as well as the general population, to consider other economic indicators currently when evaluating the overall health of the economy (and when to raise interest rates) rather than focusing attention onto the decline in prices of the stock market.

http://www.wsj.com/articles/fed-almost-certain-to-keep-interest-rates-unchanged-at-next-meeting-1452882343

Wal-Mart Makes Rare Retreat on Home Turf

Walmart as well as other stores have begun to feel the astronomical effects e-commerce could ultimately have on the way consumers purchase goods. Walmart itself is projected to feel a 12% decrease in profits due mainly to e-commerce and a few other factors.

With this being said, Walmart has plans to close a total of 269 stores nationwide or 1% of their annual sales with 154 closing in the US.  While there has been larger numbers of stores close internationally, this is one of the first times we will see a large number of Walmart stores, superstores, and express stores closing domestically on Walmart's home turf.  The closings will eliminate 16,000 jobs resulting in 10,000 being from the US alone.

Looking forward, Walmart is looking to invest more heavily in the e-commerce business, invest more globally instead of heavily domestic, and also to give better wages to their employees in order to spur sales growth.  Walmart is also working to plan where to locate their establishments more strategically in this reconstructive phase in order to better position themselves for the future and make them aesthetically more pleasing to the customer.

Do you think this is all too little too late for Walmart? Do you agree with an investor who said, "this is not enough" and Walmart should invest more heavily in order to fix the problems the company has surrounding it and the workers who work there? Do you think an e-commerce approach would work for a grocery superstore?

http://www.wsj.com/articles/wal-mart-to-close-269-stores-globally-1452868122