So the group with access to the best information didn’t do a good job of interpreting that information. And you can see in the forecasts, they were pretty much in agreement. They were looking for just better than 2,300 for the year. They saw a +3.7% year for the S&P 500. They undershot by 12.2 percentage points thus far.
They should have listened to billionaire Larry Robbins. Remember, he did a study on the influence of low interest rates, Fed policy and oil on markets. He says every time ONE of these (following) conditions has existed, the market has produced positive returns.
- When the 30-year bond yield begins the year below 4%, stocks go up 22.1%.
- When investment grade bonds yield below 4%, stocks go up 16%.
- When high-yield bonds yield below 8%, stocks go up 11.6%.
- When cash as a percent of asset for non-financials is above 10%, stocks go up 17.6%.
- When the Fed tightens 0-75 basis points in the year, stocks go up 22%.
- When oil falls more than 20%, stocks go up 27.5%.
All of these conditions have been met this year. And stocks are up 16% with about seven weeks remaining in the year.
Add to this, the idea that a regime shift was underway, moving from a QE-driven economy, to an economy to be driven by structural reform and fiscal stimulus (under the incoming Trump administration this year), should have bumped up even the most conservative of forecasts on stocks for the year. With the economy still performing under potential, yet with the momentum of low interest rates, cheap gas, low unemployment and solid balance sheets, the pieces have been in place for a pop in growth. The idea of feeding fiscal stimulus into that mix should have had Wall Street forecasting the rise of all asset prices. They didn’t see it coming.
