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The “Heat Map”

November 23, 2015 | Weekly Commentary

Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade equals B+ (very favorable). Gasoline prices continue to drop. Imports have become cheaper due to the strength of the U.S. dollar. Low interest rates will help real estate, an important component for the consumers’ wealth effect. These trends put more money in the pockets of Americans coming into the all-important Holiday shopping season.

THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. The FED’s minutes released last week suggest the Fed will “pause and reassess” after the first move. Investors had been uncertain about whether a hike would be one-and-done or the start of a series of stepped increases, as has been the Fed’s history, says Kevin Kelly, chief investment officer of Recon Capital Partners.

The next big milestone is the Fed (Open Market Committee) meeting which will occur December 16 – 17.

BUSINESS PROFITABILITY: This factor’s grade is a C (average).

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 6. This is unchanged from last. These risks deserve our ongoing attention.

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