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• 10-Year Treasury rates started a downtrend in 2000, accelerating in the 2008 Crisis; this downtrend was challenged in November-December 2015 as the Federal Reserve ended the ZIRP program, raising the Federal Funds Rate to a target of 0.25-0.50%.
• Contrary to several years’ expectations, this downtrend has not resolved to the upside and long duration rates have dropped

• Now that the S&P 500 has dropped nearly -14% from its all-time highs and reached support from the 2014 lows , the question is where to now?
• US equity markets have been largely running in lockstep with crude oil prices;  crude oil is now trading below the 2009 lows and appears headed for support from the 2002-2003 lows in the $17-25/barrel range.
• Lon

It has been an unusually weak start to 2016, challenging analyst and investor views of where we are headed in terms of the economy, earnings, and the markets.

Here are the reasons why everyone is increasingly nervous about the investing environment:

It is important to understand the overall environment that has evolved since the 2008 Crisis in terms of economic growth, debt growth, and interest rates; it is this overall view that is the most important context to the Fed’s new tightening program, and the perspective that nobody wants to talk about.

• The Federal Reserve is late in starting a tightening cycle; this presents the world with yet another unknowable scenario where the U.S.

• At the beginning of 2015, consensus was for S&P 500 operating earnings to reach around $130/share, or 15% higher than 2014.
• 2015 S&P 500 operating earnings are now forecast to be just $106/share based on a forecast of a 14% QoQ jump in earnings in 4Q15.
• Even with this dramatic forecast for a jump in 4Q15 earnings, 2015 will be the first year-over-year drop in

• Of the 9 major sectors that comprise the S&P 500, only 4 outperformed the S&P 500 in 2015 — Consumer Discretionary, Healthcare, Consumer Staples, and Technology.   These sectors contribute about 59% of S&P 500′s operating earnings.
• Of the other 5 sectors, 4 significantly underperformed the S&P 500, which is down about -1% YTD — Energy

• The S&P 500 has been trading in a wide 250 point range since May 2014
• Up until June 2015, the trend was clearly up as we saw a progression of higher highs and a 200-day EMA with a consistent positive slope
• The summer volatility in the index has turn the 200-day EMA slope negative, and, despite a run near the all-time highs in October, the 200-day EMA has not been

Market risk has risen substantially over the past month.  October’s reflex rally was driven substantially by an apparent basing in the energy markets, the subsidence of concerns surrounding China’s economic situation, and the lack of action by the US Federal Reserve.   The energy markets have again destabilized over the past month, concerns about emerging markets and

• A peak in S&P 500 operating earnings were an early sign of market tops in both 2000 and in 2007.
• While market peaks were within a few months of the earnings peaks, the actual market reversals into bear markets occurred 5-7 months later:
  • In 2000, S&P 500 quarterly operating earnings peaked in 2Q00; the market peak was in March 2000 and the ultimate market