Yuck again!

It’s been a while since I’ve last posted anything. There are a couple of reasons. Most importantly, I have no idea what to say. I’m very surprised, I confess, by the mauling the market has experienced since late September. Relentlessly. Earnings have been, and are, good, which is what sustains market growth. Inflation, interest rates, employment, too, have all remained strong. Maybe off their best levels but strong with little to lead me to believe they and other signs of economic health are tanking. Is it Trump’s tweets?

Still, markets have struggled, to put it politely. If I were less polite, I’d say markets resemble a clinically-depressed patient wandering around naked on the roof of a tall  building pondering a big jump.

I think we’ve just hit a sixth day when markets were up, usually early in the day, and by closing lost two to three percent – on little or no news. Just because.

Weird stuff keeps coming up. Like Monday. The United Kingdom’s Teresa May seemed to face rejection by her party along with her Brexit plan. Yet, U.K. stocks were performing far better on the day than America’s in light of our read of events over there? Why? No idea.

We have had 800 point falls in a day because trade concerns with China arise. Then, soon after, we get more clarity on the improving state of trade concerns with China. And markets fall more.

Right now, there simply doesn’t seem to be any way to win. All bad news is seen as very, very bad news, and all good news is seen as bad. It happens sometimes. It won’t last.  But it can hang around for a while.  Until it doesn’t. It’s just a shame, though, that performance during the best month of the year – December – has so far been such a bust, down about 4%, month-to-date. Again, why has this happened?No idea.

It will not last. It’s just one of the market’s occasional irrational spells. In the long run, the market gets it right. It’s in the short term it can overshoot or undershoot in strange ways. Like now.

Hang on, friends. The ship will be righted. Soon, I think, too. Things still look too good for the market to be doing what it’s doing for much longer.

Merry Christmas.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, retirement investing, stock rallies | Leave a comment

And on and on it goes

The markets’ correction continues. The best performers, like tech stocks, have been become beaten-down dogs. Earnings are, and have been, great, but that hasn’t matter. The beating continue.  In October, we had a string of 28 consecutive days without a single, back-to-back pair of up days  – as long a stretch as any since the Great Depression.  The average stock is now down 20% or more, which, for a broad array of stocks constitutes a bear market. The Relative Strength Index (a measure of velocity and magnitude) on the S&P 500 hit an astoundingly low level of 17.66 – a level so low it was never plumbed during the entire Financial Crisis of 2008.

Think about that last statement. During the entire panic of 2008, when the worldwide financial system was in danger of melting down, when the U.S. government took over Fannie Mae and Freddie Mac, when Lehman Brothers collapsed and Merrill Lynch was sold to Bank of America, when the US Federal Reserve lent AIG $85 billion to avoid bankruptcy, when U.S. Treasury Secretary Hank Paulson unveiled a $700 bil. rescue plan to purchase toxic assets, when Washington Mutual was seized by the FDIC and forcibly sold to J.P. Morgan, when the FDIC announces that Wachovia will be purchased by Citigroup.

In some significant ways the U. S. markets are reacting worse today than they did when all the events sited in the preceding paragraph were occurring in 2008.

Wow!

And why?  I can’t tell you.

Maybe it’s just a healthy, normal correction that happens in stock markets about once a year.  We didn’t have one last year, so I’ve had two doozies so far this year. The third quarter earnings season just ended, and corporate earnings grew at the astonishing rate of 24%. Put that in context of a “normal,” good rate, historically, of 7 or 8%. Oh, yes, and the GDP of the US in the third quarter grew at 3.5% and the prior quarter grew at 4.2%. Do you also know that unemployment is at 3.7%, and weekly unemployment data tells us that things have not looked so good in 45 years. We have more open jobs than people to fill them.

Are there concerns?  For sure, there always are and will be. This is a fallen world, after all. Trump lost the House.  His opponents will try to destroy him and his growth-oriented economic program. Earnings cannot keep growing at the rate they have been growing.  (But they are and can keep growing nicely.) Interest rates and inflation are moving up a teeny-tiny bit. The economies of the rest of the world are sick and getting sicker.

But do these negatives really, really warrant the kind of unremitting bloodbath we have seen since late September?  Not to me, but then I don’t make the rules this or any other market plays by.

However, I would caution any of us on a couple of things.  First, don’t cut and run. I think you will regret it.  Second, in the short run, the stock market can be thoroughly irrational. Accept that. In the long run, it gets things right. What has brought on this market heart attack of sorts is beyond any financial doctor to explain. It just is. Try not to drive yourself crazy figuring it out.  For more than 20 years my late wife was sick with a lethal number of medical problems.  Doctors helped her, best they could. But much of her constellation of problems were beyond her doctors’ own understanding. Did that stop me from brooding over what was wrong, and what might I be able to do to help her? Hardly. It took a long time for me to realize that “this is the way it is.” For now, at least.

So, go about you day. Have lunch. Meet a friend.  Go for a walk.  But stop brooding about what we can’t understand in a structure – that is the stock market – that just behaves this way, like an angry teenager, from time to time.

God bless you all.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living, The Great Recession | Leave a comment

For Investors, right now, it’s a hurting world out there.

This is not a pretty chart. It’s from Bespoke Investment Management, and it’s worth a look (“OS” and “OB” mean “over sold” and “over bought”, “N” means “neutral,” and horizontal lines show recent direction of recent moves. Green dots are positive; red are negative.):

 

 

 

 

 

 

 

 

 

 

 

 

 

Not a country in the world, developed or emerging, is up in the last year.  Some places, like China and Italy, are in bear market territory (more than a 20% decline). Yes, the U.S. is down, too; but for now, it’s down the least of all countries on the list.  And I think that will remain so for the rest of the year.

So what’s happened?  Are we moving towards the end of the world?  Well, in the long run, yes. But in the next year or so? I doubt it very much.

Here’s the S&P’s returns for the prior four years:

Dec. 31, 2017 21.83%
Dec. 31, 2016 11.96%
Dec. 31, 2015 1.38%
Dec. 31, 2014 13.69%

And if we go back five years to 2013, that year’s return was 32.4%.

What we have here, my friends, is, I believe, an old-fashioned, U.S. choice, grade-A, #1 market consolidation.  At one point this year, do you realize the S&P 500 was up 40% since Trump’s election.

I don’t believe the market is “rolling over” – at least not yet. Outside the U.S., there are some real struggles that are affecting the outlook for global business and trade. But as the old market saw says, “Trees don’t grow to the sky,” and “bulls make money, bears make money, but pigs get slaughtered.”

So, don’t be a pig, and don’t be a nervous scared-y-cat, either.  Have patience.  Good things come to those who do.

Blessings, my friends.

 

 

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, stock rallies, Successful living | Leave a comment

Wow! What a Ride!

First, a few facts:

  • Yesterday’s trading was volatile: After an initial climb, the Dow fell more than 900 points before recovering in the final 15 minutes—with no obvious catalyst—to finish down 1% for the day.
  • The S&P 500 has fallen in 16 of the 21 sessions this month, the most in a single month since October 2008. A 17th dip would be its most in a month since April 1970.

    The forward price/earnings ratio of the MSCI All Country World Index—which tracks performance across 23 developed and 24 emerging markets—has fallen to around 18, its lowest level since early 2016.

    On this day in 1929, the Dow Jones Industrial Average had one of its best days ever, rocketing up 12.3% to 258.47 as John D. Rockefeller, Sr. announced: “There is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week.” The Dow went on to lose 84% more of its value before bottoming out on July 8, 1932.

We all know that trees don’t grow to heaven. We all know that markets fluctuate. We all know that bad stuff will happen in markets and that recessions are inevitable.

But this waterfall market drop of some 10% this month is a real doozy.

If we go back to the market collapse of October of 2008, a horrific event we all remember, think for a moment what preceded it.  Lehman Brothers had collapsed, Fanny and Freddie – two gargantuan mortgage providers – had failed and were in Federal receivership, Merrill Lynch, Countrywide, and many other large banks had failed.  The US and the world’s financial engines were imploding. And that month, the US stock market fell about 10%.

This October, I walk out my back door, I look up into a cloudless night and a starry sky. I hear no noise of war or chaos, armies are not marching in the street, financial markets are sound,  our unemployment rate is 3.7%, interest rates on 30-year US Treasuries are about half the historic, long-term average for bonds of that maturity, inflation is modest, and our economy grew 4.2 % in the spring quarter and 3.5% in the summer quarter. Are there troubles at home and around the world?  Yes.  But nothing resembles the shambles October of 2008. Yet our markets have replicated the collapse of ten Octobers ago.

Is a recession about to envelop us?  I don’t see it, because such data points as I mention in the preceding paragraph do not accompany the entrance of recessions. However!!! confidence is the life blood of investing, and events like we’ve seen this month do terrible damage to investor confidence.

If you are scared over what’s happened this month, then you’re human.  This is a scary time for any investor except for fools, madmen, and the most hardened of experienced investors who knows, every day, that the cure for low prices is low prices.

Most market falls have some explanations that offer some understanding as to why things are falling apart.  Oct. of 2008, we’ve covered above. The summer and fall of 2011 when the S&P fell about 20% could be attributed to America’s credit rating being downgraded.  The summer of 2015, there was the China scare.

But now? I guess all I can say is “Stay tuned,” as if this is a television drama which has been written for weekly viewers who enjoy terror.

But this too shall pass.  Patience gains all.  I hope my readers and investors will not do anything precipitously that would “book” the kind of losses we’ve experienced only on paper to this point.  For, as of today, unless you have sold into this madness, you haven’t lost anything.

God bless us all.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, retirement investing, saving, stock rallies, Successful living | Leave a comment

Sheer Panic

I wrote a post early in the month.  It was just after the selling that continues had begun. What I confess I thought would be a 5% consolidation of recent gains is approaching 10% and is, many hours when markets are open, full-blown panic.  Panic as in “GET ME OUT!!! NOW.  I’ll take whatever you offer.”

Needless to say, this is an extremely challenging environment. The speed, depth, and duration of the daily losses, paired with the volatility spikes, are things we haven’t seen since 2008.

The average stock in the S&P 500 is now down over 20% from its recent high, in many cases that is late September. Meanwhile, the S&P 500 Index has dropped 19 of the past 24 days and 13 of the past 15 — again, this is something that hasn’t happened since 2008.

Moreover, the pace of this downward dive has been nothing short of breathtaking. Even overlooking yesterday’s extreme moves (with the S&P 500 down 3.09%; the NASDAQ down 4.43%), last Wednesday & Thursday’s two-session 5.3% decline in the S&P was one of the largest drops seen in the past 50 years. And the RSI (Relative Strength Index) hit 17.6 — note it has only traded below 20 six times in the past 30 years.

That’s what is, my friends.  But why has this happened now? Especially at a time with  record low unemployment and record high GDP?  This is, to me at least, a mystery. Sure, interest rates are rising, but they’ve been rising for years now — slowly, steadily, and with great anticipation and foresight — there haven’t been any “surprise” hikes. Further, interest rates remain, unquestionably, near historically low. Some feel the market’s fall may be related to tariffs or tensions with China, but those realities have been going on for the better part of a year. Others contend that earnings are slowing. Perhaps, but earnings are estimated to grow by more than 10% in 2019, and more than 10% in 2020, meaning the current market multiple stocks carry will easily be “grown into.” I also hear that the market’s forward P/E is too high – predictions on stock valuations next year. But P/E’s are about the lowest they’ve been in the past four years, and already down about 18% from December 2017 highs. Even before this month’s market falls, those valuations were sitting right on their 5-year average

In searching for an explanation for the recent drawdown, still others point to technical factors – risk parity funds, negative flows on passive ETFs, a lack of buybacks, etc. It’s hard to pinpoint what the cause is. The more relevant question is likely: where do we go from here?

With that in mind, but with no sense of the time these things will take to play out, four things remain true, and may offer a glimpse of what’s to come:

1) As we are still toward the beginning of earnings season, we are in the midst of a stock buyback blackout period. Meaningful buybacks will kick-in within days (beginning 48 hours after they report, companies may repurchase up to 25% of the Average Daily Volume) as the bulk of companies report this week. This should help lift stock prices soon.

2) Midterms will be upon us and soon behind us. This tends to be a very favorable time for the markets. In fact, over the past 80 years, according to Deutsche Bank, the three-month period running from a month ahead to two months after the election has produced a median +8% gain. And that includes only one decline, a -4% drop in 1978, over that period in the last 21 midterm years. So, 20 out of 21 being positive is pretty good.

3) Seasonality: Over the past 30 years (results are similar over 20- and 10-years, too), the fourth quarter of the calendar year is by far the best quarter for the S&P 500, producing an average +4.76% gain

4) Dips and Corrections are temporary:

a) The SPX has dropped by -4% or more in one day on 41 occasions over the past 59 years (going back to 1959 — the first full year of data). We’ve seen more than 10 days this year, so far, with drops between -2.1% and -4.1%.
b) Over the next month, the S&P was relatively flat (up an average of about one-half of a percent), but over the next year the index was up an average of +20.1%. Breaking down the latter figure, the S&P was up 78% of the time over the next year, including up by double digits 75% of the time with a range of +12% to +67%.
c) Finally, there have been 15 drawdowns of -5% or more since the end of the financial crisis. Every single drawdown (15 out of 15) has seen a recovery. In other words, every single dip should have been bought. Despite these persistent drawdowns, the market moved higher by +412%, in just over 8 years:

Over the past 30 years, alone, the S&P 500 Total Return Index is up +1,731% — recessions, corrections, and drawdowns included.  Every dip has been bought. And without knowing exactly when the drawdown will begin or end, there has never been a reliably good time to be out of the market. It has paid to stay invested.

Is what’s happening upsetting? You betcha.  But it will pass. Patience, dear people. Patience.  If one hopes to get the benefits of investing in stocks, you must be able to take the occasional drawdowns.  It’s like growing roses: you must endure being stuck by thorns.

I am in Romania right now, speaking at several locations.  Many of the statistics I have sited in this post have charts accompanying them. Unfortunately, your trusted blog writer is incapable of figuring out how to post the charts, so you’ll have to do without them.

This too shall pass.  God bless us all.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living | Leave a comment