Market Pulse: What’s happening … and what isn’t |

Market Pulse: What’s happening … and what isn’t

David Vomund

Stocks are off their highs and volatility is rising. Dow moves of 100 points or more are now routine. What's this all about?

First, what it's not about. Missiles and bombs are flying again, but to investors geo-political events seldom have legs. Crimea, Gaza and Ukraine briefly dominated the headlines recently; stocks still set new highs.

Now it's ISIS, Syria and Iraq. Not important for investors. Thousands are demonstrating in Hong Kong. Sanctions are hobbling the Russian economy. Ebola has arrived.

Those are distractions and serious problems, too, but not reasons for stocks to rise or fall except briefly in knee-jerk fashion.

The global and U.S. economic outlook and its implications for future interest rates and profits are the long term market drivers. The main risk for stocks is that the outlook for growth could deteriorate. Some believe it is deteriorating now. Maybe.

Junk bonds, which are bets on economic growth more than on interest rates, are declining and yields are rising in anticipation of an increase in defaults in a softer economy. Growth in China is slowing. Europe isn't growing at all and unemployment is 12 percent.

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Japan's GDP fell sharply in the second quarter after a sales tax increase. More than anything else, the recent selling, apart from just periodic profit-taking, was caused by increasing doubts about the growth story. And with some cause.

Profits will likely be a little less than previously expected due to the impact of the dollar's rise on multi-nationals and the slowing global economy.

IMF head Christine Lagarde said the global economy could be in a "growth rut" for many years due to the hangover of high debt and unemployment in many countries. The U.S. is one key exception.

The employment report showed that growth is on track here, which means corporate profits will rise this year and next. Stocks are not in a bubble nor are they even overvalued.

Most important, the need to put money to work will trump all else, as it has for years. Lots of cash will find its way into the market where it will be treated best and large-company dividend-paying (and boosting) stocks will be in demand.

Bottom line: It's still a bull market.

David Vomund is an Incline Village-based fee-only money manager. Information is found at or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.