Have you ever had the experience when you went to run water in a shower, or sink that you just could not get the hot water hot enough to meet your satisfaction? Yes, it was warm and yes it was OK – satisfactory, but really it was not hot enough. Your senses were just saying to you “this is just not right. This really needs to be hotter!” or you think to yourself, that if you get into the shower or wash your face, this is going to be quick! Next, you begin to wonder what is wrong. Is the hot water heater going out? Has a circuit breaker flipped? What number am I in line this morning to get my shower? A whole host of things run through your mind from concerns to worry to how much is this going to cost?
Well, that is kind of where the market is right now. This first quarter 2016, went form COLD water to HOT water to now LUKE warm water. Water and market sometimes are off and on and so far this year the market has not stayed hot!
We now go into the second quarter 2016 and we believe there several key element that we need focus on:
1. Let’s stay focused on oil prices. If oil stays in a range of $35-$50 per barrel, we believe the market can begin to feel confident.
2. A continued weakened dollar will help U.S. exports.
3. Watch for a revision of the first quarters Gross Domestic Product (GDP). We believe, it will, in all likelihood, revise lower but if there is any hot water it needs to show a positive report.
4. Signs from the Federal Reserve that there will be only 1 at most 2 rate hikes this year.
5. Second quarter earnings reports. They will be lower, but they too must show optimism for the second half of this year.
If these factors along with several others can be seen over the next several months, many believe that this is an indicator that the second half of this year will have “hot water.” Now do not assume that this will suggest an all-out Bull Run. No, remember volatility is here to stay. But, we believe it can suggest that this year can end on the upside with positive numbers.
We are watching and studying all indicators. In many client accounts, we are still over-weighted in the Large Cap Asset sector, with cash on the sideline. We will continue to look for opportunities and signs for the right time to get further in or stay defensive.
We do believe the market can turn hotter in the second half and let’s watch together.