The Flat Performance of the SPX Over 1 Year

If we take a look at the S&P 500 Index of the course of 1 year, there is very little to write home about. On 4 May 2015, the S&P 500 Index closed at 2,114.49 points, and it is now trading at 2071.34 on 2 May 2016, for a loss of 2.04%. If we turn our attention to 2016, things are a little different, given that the S&P 500 Index has gained 1.33% since opening at 2,043.94 on 1 January 2016. However, the index hit a low of 1,829.08 on 11 February (at that point declining by 10.51% for the year to date), and since advancing well over 240 points to its current level. But the performance of this prized Index has been anything but exemplary in 2016, with lackluster returns from the leading technology companies, industrial companies, and financial companies et al, dragging the index lower. The index has stalled since reaching a high in May 2015. One of the most concerning elements is why valuations have increased amid flat or declining earnings. For the most part, listed companies on the S&P 500 Index do not have an optimistic perception of upcoming quarters.

Arguably the most significant component of the S&P 500 Index, and the Nasdaq Composite Index, is the slack performance of leading technology companies. It should be pointed out that the S&P 500 Index is comprised of approximately 20% tech companies which have heretofore been a drain on the performance of listed indices. For the most part, investors are now scurrying to seek out high-yield dividend paying equities. This listing of top 50 companies has already gained 8% in 2016 – far greater than the performance of other components in the market.

Upcoming Data to Temper Expectations

One of the most highly anticipated economic reports in the world is the US jobs market data. This will be released on Friday, 6. Analysts are anticipating that some 200K jobs were created during the month of April. That pales in comparison to the March 2016 figure which came in at 215K. It should be pointed out that the Fed is of the opinion that new jobs creation in the US is becoming a source of concern. Overall though, new hires remain one of the most robust and positive components of the US economy, helping to drive growth and allow the economy to maintain its edge as the global front-runner. While growth numbers are positive, this will be the third successive month of declines (month over month) if a figure of 200K is reported. The jobs growth between January and February 2016 was positive, but prospects have been declining ever since February 2016. The main source of concern for the US economy, and major indices like the S&P 500 Index, the Dow Jones industrial Average (DIA) and the Nasdaq Composite Index, remains stagnant wage growth. The US is under pressure to create a greater amount of high-paying employment, and unless the economy can adjust accordingly, stagnation will ultimately take place.

How Much is the Performance of the JPY Impacting on the USD and Major Indices?

The situation in Japan is particularly interesting in that the economic policy known as Abenomics is having a profound effect on the Japanese economy and the global economy. For starters, the yen has strengthened dramatically against the greenback in 2016, and is now trading at 106.574 to the dollar. The year to date depreciation of the USD versus the JPY is 11.40%, with plenty more where that came from. The Bank of Japan – in an unexpected move – decided to implement negative deposit rates in 2016. This sent shockwaves through the global economy and had an opposite effect on the Nikkei 225 index and the JPY. The Nikkei started to plunge and the Japanese yen started to appreciate. This may bode well for Japanese imports of foreign goods, but it does precious little to support the largely export-oriented Japanese market. Recall that the vast majority of Japanese earnings are derived from exports of goods and services to European, Chinese, US and Canadian buyers.

Analysts were expecting the BoJ to adopt quantitative easing policies recently, but no such measures were enacted. Furthermore, it does not look likely that the central bank will be selling foreign currency for Japanese yen anytime soon – preferring instead to let market forces weave their magic on the JPY. Market participants are expecting some sort of intervention to take place if the USD/JPY currency pair hits a level of 100 to 1. Until then, a weak USD, strong demand for gold and silver, and low-volume trading ahead of the jobs report is likely to characterize Wall Street this week.