3 reasons to be positive of risk in Q4 2015

As we begin the final quarter of the year there seems to be a lot to be bearish about. Issues such as the ongoing economic slowdown in China, continued high volatility leaving investors fearful, and the prospect of the Federal Reserve hiking interest rates for the first time since 2006, have all contributed to the selling pressure on markets in recent months. However, not everything has to be doom and gloom. There are still reasons to be positive. Here are 3 reasons why investors and traders can still be positive of risk in Q4 and why the bulls can fight back.


The Federal Reserve shied away from raising rates in the September meeting. Far from taking the normal route that a dovish Fed is bullish for market sentiment, the markets took a dim view of the decision. There seems to be an acceptance that the Federal Reserve needs to begin the normalization of its monetary policy in order for the economy to truly be considered as leaving behind the financial crisis. Markets appeared to be concerned that the Fed was worried by the global market turmoil as a reason why the US should not hike rates. In Q4 if the Fed feels that it can look past the global conditions, and hike rates then this should be seen as a positive. The FOMC is inherently dovish in its voting makeup, and would naturally be cautious about raising rates. The fact that the FOMC would be ready to raise rates suggests that the US is truly ready to cope with a hike and this should be seen as positive for risk. Fed speakers have been lining up this week to speak of the potential for a rate hike in 2015 being “appropriate” (including the dovish Fed chair Janet Yellen) and this suggests that perhaps barring a significant meltdown in China, the Federal Reserve could be set to hike in December.

Below is part of a transcript that one of the Fed’s most historically dovish members, New York Fed President Bill Dudley, from an interview with the Wall Street Journal’s Jon Hilsenrath on Monday:


As ever, it seems the Fed is data dependent but if the data can hold up then the FOMC could be set to move. In answering the fact that the Fed Funds futures are not expecting a December hike, Dudley goes on:

dudley 2

Much has been made of the fact that Q3 US earnings season is going to be a disappointment. Q3 earnings are forecast to post a second consecutive quarterly decline which would be the first time this has happened since Q2/Q3 2009. According to FactSet, earnings are expected to decline by 4.5% whilst revenues are expected to fall by 3.3%. However this i for the broader market and if the volatile energy sector is excluded from these calculations then earnings season becomes far less bearish. The oil price seems to be at least stabilizing and if it has not already seen the bottom, it is likely to be in the process of bottoming. In Q2 the oil price was still falling as it began the quarter at $59 to and ended it at $45 which was a decline of almost 24% although at its nadir in August the oil price had fallen as much as 36% in the quarter. Discounting the energy sector, earnings are still growing. Removing the energy sector performance from the market calculations means that Q3 earnings season would return +2.9% earnings growth and +2.4% revenue growth.

The oil price seems to be stabilizing now as support on WTI Oil (NYMEX) has held up above the increasingly key support at $43.20 for the past 5 weeks. The oil price has been seen by many traders as a reflection of risk appetite such to its depiction of Chinese demand. A supported oil price suggests that the market is coming closer to equilibrium and that demand is stabilizing. If the volatility in the oil price continues to settle down then this will help to generate investment confidence and improve risk appetite.