August and September were the kind of months that make you question why you ever invested in the stock market in the first place. Months like August and September make you forget how much money you made in the stock market PRIOR to August and ONLY focus on how much you lost. (Even worse, with today’s technology, you can see how much you lost during the last hour of any given day.)
They are the kind of months that say to you, “Don’t stand so far back from the trees. Step up here really close so you can’t see the forest very well. Forget about how well you may have done in the past. Just think about how much you have lost in the last 10 minutes.”
I’ve been through these kinds of months many times in my 34+ years in this business. I survived October 19, 1987, also known as “Black Monday.” (I understand that if you lived in Australia, it was officially known as “Black Tuesday.”) On that day, the stock market crashed. To say it “crashed,” as if you are talking about a car crash, doesn’t do it justice. It was more like a 73-car pileup. The stock market dropped 23% in one day. Some people were financially wiped out that day. Some committed suicide because of it.
I was 33 years old and knew nothing about anything at the time. During the panic of that day, I called my largest client to let him know that his stocks were plummeting in price. His account was comprised almost completely of stocks of the blue chip variety. I thought he might want to know that his net worth was disappearing. I didn’t have any brilliant recommendations to give him. I just felt it was important that he knew he was going quickly broke.
He chuckled at me and told me to go bother someone else. He said, “I wasn’t gonna sell them if they were up. Why would I sell them because they are down?”
He passed away several years ago, and on the day of his death, he still owned almost all the same stocks he owned in October 1987. They were worth a lot more then than they were in 1987, and he and his wife had lived off of the dividends paid by those companies over the ensuing 24 years. Between 1987 and his death, he calmly weathered several other drastic market declines.
This was a man who knew how to stand far enough back from the trees so he could see the forest. A man who did not get caught up in listening to CNBC. This man understood that he had invested in viable businesses, not just numbers on a page.
Those were all lessons I learned from him. If there are any lessons I can pass on to you before my death, it would be those, along with this: don’t ever invest in variable annuities.
I told you last month we feel strongly that this recent stock market decline is nothing more than an overdue correction. After an impressive four-year rally, the stock market ran into some profit taking.
Our opinion hasn’t changed.
After a decline of over 6% in August, the S&P 500 fell another 2.6% in September. Foreign stocks declined another 1.5% after losing 6.5% in August.
But in just the first week of October, we are beginning to see a small amount of stock market optimism. Through Friday, the 9th, the S&P 500 has increased almost 5%.
The Federal Open Market Committee (FOMC) met in September. I predicted that they would probably raise the Fed Funds Rate, but also allowed that there were plenty of reasons for them to leave rates as they were. My prediction was wrong. The Fed voted to leave interest rates unchanged.
Among other reasons, the Fed had to be concerned about the effect of raising interest rates on the value of the dollar. The strength of the dollar over the past year has begun to negatively affect the earnings of multi-national corporations like Deere and Caterpillar.
And the collapse in commodity prices eliminates the fear of inflation in the near future.
After the anemic jobs report in early October (142,000 vs. an expectation of 200,000), now I’m thinking there is a realistic possibility that the Fed will not raise rates at their next meeting and will wait until sometime in 2016.
The bond market reacted very positively to the Fed’s decision to do nothing. The 10-year U.S. Treasury bond rallied and the yield fell from 2.2% before the decision to as low as 1.99% after. I see no reason for higher interest rates in the near future.
At Boyer & Corporon Wealth Management, we see the stock market in a sideways trading range for a while. It seems to discover a significant amount of sellers when the S&P 500 reaches 2000 and it seems to find a significant amount of buyers when it approaches 1900.
Sideways trading patterns are never permanent. They eventually end. But until we see steady trading at levels above 2000 or below 1900, we will attempt to take advantage of that trading range whenever possible.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.