- Don’t fixate on the news. The more often you update yourself on the market’s fluctuations, the more volatile and risky it will appear to you — even though short, sharp declines of 5% or more are common. Fixating on fluctuations in the short term will make it harder for you to remain focused on your long-term investing goals.
- Don’t panic. While stocks are certainly not cheap, they aren’t wildly overpriced, given today’s levels of interest rates and inflation.
- Don’t be complacent. You should use the latest turbulence as a pretext to ask yourself honestly whether you are prepared to withstand a much worse decline. Did you lose sleep Friday night or over the weekend worrying about your portfolio value? If so, we need to talk AS SOON AS POSSIBLE
- Don’t get hung up on the talk of a “correction.” A correction is typically defined as a decline in price of 10% on a widely followed index like the Dow Jones Industrial Average. The term doesn’t have official status, however. Markets recover from most corrections within 3 or 4 calendar quarters. A market decline of 10% has no real significance in and of itself. What matters is the outlook for the future; that doesn’t depend on whether the market is down 10.2% rather than 9.8% – see a discussion under “HEAT MAP” below for the outlook for the U.S.
- Don’t think someone on TV—or me –or anyone else–knows what will happen next. After a market drop, or at any other time, no one knows what the market will do next. Stocks could drop another 10% from here, or another 25% or 50%; they could stay flat; or they could go right back up again. Diversification and patience — and, above all, having a long term plan in place — are your best weapons against this ever present uncertainty. (Source, in part: Wall Street Journal)
Daily Archives: August 24, 2015
The “Heat Map
Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: This grade is a B (favorable). Gasoline prices continue to drop. Imports have become cheaper due to the strength of the U.S. dollar. Both trends put more money in the pockets of Americans coming into the all-important Holiday shopping season.
THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. The next big milestone is that Fed meeting Sept. 16-17
BUSINESS PROFITABILITY: This factor’s grade is a C (average).
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 6 due to continued signs of a slowdown in China. These risks deserve our ongoing attention.
The Numbers
Last week, Bonds increased but U.S. Stocks and Foreign Stocks declined. During the last 12 months, BONDS outperformed STOCKS (the first such situation in several years).
|
Returns through 8-21-2015 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.6 |
1.1 |
2.6 |
2.1 |
3.2 |
4.6 |
|
US Stocks-Standard & Poor’s 500 |
-5.7 |
-3.0 |
1.0 |
14.1 |
15.4 |
7.2 |
|
Foreign Stocks- MS EAFE Developed Countries |
-4.5 |
.9 |
-6.4 |
8.2 |
7.2 |
4.1 |
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
“Your Financial Choices”
The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week Laurie and guest Thomas Riddle CPA, CFP®, President of Valley National Financial Advisors will discuss: “Taking a Lump Sum versus taking a monthly pension”
Laurie and Tom will take your calls on these topics and other inquiries this week. This show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
Motivational Quote of the Week
“Two roads diverged in a wood, and I—I took the one less traveled by, And that has made all the difference.”
― Robert Frost
The Markets This Week
So much for the lazy late summer.
Traders had to take cover against a market swoon that clobbered stocks around the world last week. Intensifying anxiety about slowing economic growth, particularly in China, sent stocks down a painful 6% on the week. It culminated in a nasty blowoff Friday, when the Dow Jones Industrial Average fell more than 500 points.
Energy equities were most punished, down 8.7%. Investors fled to “havens” like utilities and telecom stocks, down only 1% to 3%, and U.S. Treasury bonds. The yield on the 10-year note fell to 2.05% from 2.19%. (Bond prices move inversely to yields.)
Following the devaluation of the Chinese yuan, and a poor China data point released Friday, “…investors have come to the realization that global growth in the second half isn’t going to reaccelerate as previously hoped,” says Margaret Patel, a portfolio manager with Wells Fargo Asset Management.
Energy prices haven’t stabilized either, again contrary to expectation. Crude oil fell 5% last week to $40.24 per barrel. “Stocks have been priced for growth, and if that doesn’t happen, it takes the air out of the market,” she says.
For years, the emerging markets were where U.S. multinationals, especially companies in the Dow, have been making investments for growth, says Paul Karos, a money manager with Whitebox Advisors. Now there’s fear of an emerging-markets recession, he adds.
Last week, the Dow plunged 5.8%, or 1018 points, to 16,459.75, while the Standard & Poor’s 500 index shed 121 to 1970.89. For both, it was the biggest weekly point decline since October 2008. The Nasdaq Composite fell 6.8%, or 342, to 4706.04. World stocks dropped 6%. Markit said Friday that the August preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index, a measure of national manufacturing, fell to 47.1 from July’s 47.8, to the lowest level in over six years. Below 50 is seen as a sign of contraction.
On a relative basis, the U.S. looks like an oasis of growth, but can it hold up if other economies recede? American domestic data will be key for U.S. stocks in the next few months, Karos says. “We still see slow but positive U.S. growth,” he says. A few weeks ago, most investors thought the Federal Reserve would raise interest rates in September. Now, not so much.
(Source: Barrons Online)