Random gleanings from the world of business, investments and economics
May 2016: Long Odds in Soccer, Baseball and Stocks
“Anytime you have a 50-50 chance of getting something right, there’s a 90% probability you’ll get it wrong.” – Andy Rooney.
May was a month made for long odds. Early in May the Leicester City Football Club achieved what is called the greatest upset in world sports history by clinching England’s 2016 Barclay’s Premier League Football Championship. Leicester won with a group of ragtag players, coached by a manager who had been fired from five other teams.
Before the season started, odds-makers put Leicester’s chance of winning England’s soccer championship at 5000 to 1.
To put those odds in perspective, the same oddsmakers gave Kim Kardashian 1000-1 odds of being elected President of the United States.
Then Bartolo Colon hit a home run…
On May 8, 42 year-old Mets pitcher Bartolo Colon crushed a two-run homer. What were the odds? Incalculable. Up until that night Bartolo had never hit a home run in a baseball game.
Comment: ESPN ranked Bartolo’s home run as the least likely home run in Major League Baseball history.
The Financial Markets
And then, the stock market. On paper, May was quiet. The Dow Jones Industrial Average opened the month at 17,784, and closed the month at 17,787, up only three points for the entire month. (What are the odds of that happening?) But underneath the calm May veneer, big changes were happening.
- Apple defied the critics: By early May, Apple shares had experienced the worst losing streak in twenty years. iPhone quarterly sales dropped. Experts pronounced (yet again) that Apple’s success was over. When the forecasts looked darkest, the stock started back up. By the end of May, Apple had risen 11% from the lows.
- Oil prices: After a two year slump in prices, oil turned the corner in May, rising 11%.
- New Home Sales reached their highest peak in eight years. According to home price tracker Zillow, the average home is now up 20% year-to-date.
- After dropping in April, the U.S. Dollar rose 3% in the month of May. The higher dollar is reacting to the prospects of rising interest rates.
- India’s gross domestic product was up 7.6%, surprising economists and indicating that India is now the fastest growing economy in the world.
Perhaps the biggest stock market story of May, 2016 is what didn’t happen. The stock market didn’t reach new highs. See the one year charts, below:
The last time the market hit a new high was more than a year ago, May 19, 2015, when the DJIA peaked at 18,351. We haven’t gone this long without a new bull market high in more than thirty years. Which may account for the next story from May…
Mom and Pop Investors Are Losing Heart
According to a May report from the American Association of Individual Investors, only 18% of individual investors are currently bullish. That’s the lowest level of Mom and Pop bullishness since 2005.
Should individual investors be nervous? If Leicester can win the Premier League, and Bartolo Colon can drive a ball over the left field fence, what are the odds that the stock market will go up this year? A possible answer comes in a graph provided by the Hulbert Financial Digest, below.
Conclusion: based on 120 years of stock market history, there is a 66% chance stocks will be up this year…or any year.
June, the Fed and Interest Rates
Over the next two weeks the market will focus on the Federal Open Market Committee meeting scheduled for June 14-15. Last week Fed Chair Janet Yellen suggested an interest rate increase this summer “would be appropriate.”
Time will tell, but inasmuch as we’re talking about odds, what are the chances the Feds will raise rates this summer? According to Bloomberg, the odds of a .25% rate increase in the Fed’s June 14-15 meeting are only 34%. About 1 in 3.
The probability of a hike in July goes up to 57.8%.
Comment: Still better odds than a Kardashian White House.
Economics – June 1-15
Mark Wednesday, June 15 on your calendar
Wed, June 1: ISM Manufacturing Index
Thursday, June 2: Chain Store Sales, Jobless Claims
Friday, June 3: Employment Situation, International Trade
Wednesday, June 8: EIA Petroleum Status
Thursday, June 9: Jobless Claims
Friday, June 10: Consumer Sentiment
Tuesday, June 14: Retail Sales, FOMC meeting begins
Wednesday, June 15: Producer Price Index, Industrial Production, EIA Petroleum Report, FOMC announcement and forecasts
Earnings – June 1 – 15
Wednesday, June 1: Analogic, Cracker Barrel, Valeant Pharmaceuticals
Friday, June 3: Piedmont Natural Gas
Wednesday, June 8: Brown Forman, Krispy Kreme