For the month of September, the Dow Jones Industrial Average rose 2.65%, the Nasdaq Composite rose 1.61%, and the S&P 500 rose 2.42%, all for their fourth consecutive monthly advance.

At this point, we think the potential for substantial gains in the markets are at a high point until some of the structural issues facing the global economy are truly addressed versus being papered over or jawboned.  We continue to monitor the technical indicators and fundamentals of the global economy to guide our buy/sell decisions.

As has been the case for months now, global economic indicators continue to come in weak.  The difference between now and the previous few months is that bad news is now bad news once again.  Recall that just a few weeks ago, bad economic news led to the hope of economic stimulation which fueled the move up in stocks over the summer.  Now that the Fed has uncovered QE 3 (the low interest rates forever plan) and the European Central Bank (ECB) is getting a smoother money printing road, investors appear to be looking at an empty economic stimulation horizon.  Or is there still more to come?

A few weeks ago, the Japanese Central Bank released its plan to expand its balance sheet by 10 trillion Yen ($126 billion).  When a central bank expands its balance sheet it means it is creating money out of thin air to buy assets (like government bonds) to hold down interest rates, stocks or other assets to stimulate particular markets.

The important item to keep in mind is that the expansion of central bank balance sheets means the currency of that nation is being devalued.  Recall that devaluing a nation’s currency is meant to boost exports of the devaluing nation.  So, since the US just rolled out an open-ended QE3, it is likely that we are going to see more countries, like China, step into their economies with some form of stimulation to make their exports attractive.  China is one country that does not want to see its economy flounder and has the means to stimulate.

The other 800 pound gorilla is Europe whose Euro currency rises as the US depresses its currency.  Seeing that Europe’s economy is struggling, the ECB will certainly look to give Europe’s businesses every opportunity to compete on the global stage by devaluing the currency (aka print money).  QE3 and Japan’s recent intervention is just a reminder that almost all developed economies are destroying their currencies.  We maintain our stance that until the structural problems change, we will remain cautious on the investing markets.

We are expecting the coming weeks to be volatile as investors start to position for the political uncertainty here in the US, the saber rattling in the Middle East, and the ongoing problems in Europe.  Be assured, as always, we are watching the global markets and stand ready to remove risk from portfolios if the global markets warrant.

Do you have an investment strategy that seeks to protect your portfolio against volatile economic conditions?  Call me to schedule a free review of your current investment portfolio – 913.402.6099.

John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals.  For more information, visit https://www.chladekwealth.com.

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