Message from Jon
Like the weather here in Indiana, the market seems to be ever changing and quite volatile. One day, we experience euphoria, while the next, there's rain drizzle followed by heavy, wet snow conditions.
The market data seems to be questioning the strength of the recent rally based upon suggested concerns over the amounts of debt companies are holding on the balance sheets 1 These concerns, albeit valid, should be causing the market conditions to decline, but instead, this market has rallied recently, which is a bit of a head scratcher.
According to Jeffrey Gundlach, the CEO of DoubleLine Capital, the US economy is being held afloat on a sea of corporate debt, and concerns over the ability to float indefinitely is weighing heavily.2 This concern certainly adds to the focus of the Fed rate increases in 2019 and beyond.
Recently, I have been searching for high-quality companies with low to zero debt on their balance sheets and was amazed that so far I have found only 28 companies out of the S&P 500 companies have zero debt! This just goes to show you that in the past decade, since low borrowing costs have been the norm, just how many companies have not been able to resist the temptation of borrowing money. We know what happens with consumers when they borrow money and are found wanting when a job loss or critical illness happens. For corporate America, the same could happen with the next big recession and slow-down in economy and consumer demand!
We will have to wait and see...
Till we speak again, baby it's cold outside, so bundle up and keep your shovel handy!
Markets Relax and Rally
WEEKLY UPDATE - JANUARY 14, 2019