“I’m afraid to look.” These words were heard often this past week…and they weren’t referring to the local Halloween haunted house or the violence on TV. The stock market is in a scary tailspin. Wild volatility is back. The DOW lost 465 points last week! The S&P 500 Index has dropped 5% since mid-September and the Russell 2000 is off 9.1% this year.[1] In LA Lakers’ announcer Chick Hearn lingo: “It’s nervous time.”
A few short months ago the major indices were at new highs and the jobless rate was at a six year low. What’s happened since then and should you be concerned? Although we have had plenty of worrisome geopolitical events and the dark clouds of interest rate hikes…the markets have generally shrugged off negative news and continued to climb higher. With the arrival of October, equities may have simply run out of steam for awhile and just need to catch their breath. The tattered European economies, the conflicts in Ukraine and Gaza, plus the fear of Ebola have made contributions to investor nervousness. Some of our clients have taken profits off the table and hunkered down. Should you? Read on for some answers.
October is notoriously a bad month in the markets. The Crash of 1929, the 21% nosedive on Black Monday in 1987, and the 16% plummet in 2008…all occurred in October. Does the Halloween month really deserve its frightening reputation? Not really. Since 1928, the large-company stock index has posted positive returns 58% of the time. In the past 50 years, the S&P 500 has averaged +1% during the month of October. [2]
October is month for scary markets and bloodcurdling movies, too. The three top grossing movies last week were Gone Girl, a murder mystery, Annabelle, a haunted doll film, and Dracula Untold. Famous people born in October include Sting, Kate Winslet, Ralph Lauren, Matt Damon, Julia Roberts, and the world’s richest man, Bill Gates with $76B. Runners up on the Forbes list of wealthiest are #2 Carlos Slim $72B, Amancio Ortega Gaona $64B, Warren Buffet $58B, and Larry Ellison $48B. This October, the world’s most influential women are #1 Angela Merkel, Germany’s Chancellor, #2 Janet Yellen, Federal Reserve Board Chairwoman, and #3 Melinda Gates, philanthropist and co-chair of the Gates Foundation.[1]
Required Minimum Distributions for your IRA accounts will be due before year-end. For personal IRA’s, the proper distribution amount is shown on your statement…if you have reached 70 ½ years old. If you have an Inherited IRA, you are required to withdraw at the decedent’s age in the first year, then at your own age rate. Please contact us to calculate your RMD or to discuss the timing of your distribution.
Technology breakthroughs and announcements this month include Tesla’s “D” car with all-wheel drive and 0 to 60 mph in 3.8 seconds. There are new mobility developments for paralyzed people using electrical stimulation, brain-computer interfaces, and pharmaceutical therapies. Computerized emotional rescue? A recently released study claims that a computer program dubbed “singularity” can recognize a person’s emotions based upon how they type. The program was able to identify joy, fear, anger, sadness, disgust, shame and guilt by analyzing keystrokes. Will computers soon be telling us to “calm down” or “cheer up”?[2]
Last week’s market cliff dive has driven many investors to the edge. If you are worried, staying up at night, focused on the short term, or need significant cash soon…then move some investments to the side for awhile. A good recommendation for lowering risk in hot-tempered, unstable markets is to unload individual securities first. Even a company that has been around for a century can collapse and be bankrupt almost overnight. (Remember Lehman Brothers and GM?) Another suggestion would be to reduce or eliminate the overseas, emerging markets, precious metals, currency trading, and volatile sectors like technology, financial services, and biotech. You may derive some sense of relief by choosing blue-chip or dividend Exchange Traded Funds (ETFs), or even high quality bonds, REITs, or annuities. These are certainly considered more conservative places for money…but there are no guarantees of safety and security in any investment.
If you are investing for the long run, these financial implosions can be buying opportunities. Warren Buffet “buys the dips” and he’s done pretty well. Larry Kudlow recently wrote: “Change is coming and I’m taking the optimistic bull. Profits, the mother’s milk of stocks and the economy, continue to rise at about 5% per year. The first 30 companies to report the third quarter have generated 15% earnings.”[3] The lengthiest bull market ran for 113 months! This latest bull market has lasted 66 months…so some optimists might say that we’re only about half way through a big run.
What’s going on, in my view, is simply Econ 101; the laws of supply and demand.Law #1: If demand increases and supply remains unchanged, a shortage occurs, leading to a higher price.[4] Where can you place your money today and receive a reasonable rate of return without great risk? Will you renew your bank CD for less than 1% or buy a 2.5% Treasury bond? It’s tempting to look elsewhere. Gold and silver, corporate bonds, real estate, commodities, options, and alternative investments have significant risks. When a CD matures today and the renewal interest is miniscule, many customers are saying “No thanks”. The money then flows out of the bank and into the market in order to seek a better yield…and prices overall tend to go higher.
Be cautious. Make good investments and allow them room to grow. As one client put it, “I was told that if I was really worried about my investments or the economy, I should turn off the TV and go clean out my garage. Give away and throw out all my old stuff and make things neat again. By the time the job was done, everything would probably have settled down and my investments would likely have gone back up again.”
Today’s the day.
Mitch Fisher
National Asset Management, Inc. (NAM) is a Registered Investment Advisor with the SEC. NAM provides fundamental investment management services. The views expressed contain certain forward-looking statements. NAM believes these forward-looking statements to be reasonable, although they are forecasts and actual results may be meaningfully different. Actual events may cause adjustments in portfolio management strategies. This material represents an assessment of the market at a particular time and is not a guarantee of future results. This information should not be relied upon as research or investment advice regarding any security. One cannot directly invest in an index. Index performance returns do not reflect any management fees, transaction cost or expenses. Indices are unmanaged. S&P 500 Index is an unmanaged index of 500 common stocks chosen to reflect the industries in the US economy. DOW JonesIndustrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange. The Russell 2000 Index measures the performance of the small cap segment of the US equity universe.Investment Advisory Services offered through National Asset Management, Inc SEC Registered Advisor. NAM or Pacific Sun Financialdoes not offer any legal or tax advice. One should consider consulting with a legal or tax professional before implementing investment strategies.
[1] Forbes Magazine, [2] Livescience 10/9/14, [3] CNBC Money and Politics 10/11/14, [4] Wikipedia, [1] Briefing.com 10/10/14, [2] InvesTech Research