JP Morgan Chase Bank was the most recent large financial institution to cut their projections for the US stock market in 2016. They reduced expectations by 9.1%, estimating that the S&P 500 will end the year around the 2000 market, which is down from their previous projection of 2200. They cited heightened market volatility as a risk that could damage the broader economy which would bring about an earnings recession. It is important to note that even the lower projections would represent an increase of 6.5% from where the market ended the trading day on Monday. Therefore, if you are able to stomach some volatility, now may be the time to consider getting back into the stock market.
We received strong economic reports this morning, starting with Consumer Confidence for the month of January and reporting at 98.1. This reading was better than estimates of 96.0, and also better than last month’s reading of 96.3. Considering the significant recent drop in the US stock market, this is certainly a sign that people are still viewing the drop as temporary and not an indication of an imminent recession. In fact, the current estimates for the stock market drop pointing to a recession are now somewhere between 25% – 33%.
With the Federal Reserve beginning their two-day meeting today, we will receive their updated policy statement tomorrow at 12:00 p.m. MST. We will likely see a heightened level of volatility and risk heading into the announcement. If the Fed fails to back off their 4 rate hike in the 2016 statement, we could see stocks suffer and mortgage bonds benefit. However, if they state recent events as reason to lower their projections, the stock market could take off which could pressure interest rates higher. For those who do not wish to absorb the risk, now is a great time to lock and take advantage of the recent improvements we have seen.