Pssst….That was NOT the stock market correction we’ve all been waiting for!

Dear Mr. Market:

Yesterday seemed like the start of the Great Depression for some pundits and nervous nellies. Fear sells, and negative prognosis appears smarter than positive outlooks for whatever reason. The reality, and key reminder we wish to bring up again, is that the long awaited correction has yet to come. As of this writing, we are literally only -3.91% off of all-time S&P 500 highs in the market.

It should be noted that AAII Bearish Sentiment reading is as high as its been since the last most major S&P 500 sell-off.

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Cargo Ship Gridlock

Dear Mr. Market:

What’s the first term you think of when discussing the economy? Stocks, bonds, gold? How about Supply & Demand?

On a recent flight to Salt Lake City, Utah, we saw a “picture worth a thousand words”. Matt Pixa, founder of My Portfolio Guide, LLC, took this picture from the air and also went out to pick the brains of some contacts he has in the import/export business to help put more color to the canvas.

Long Beach, CA port

If you zoom in on the picture it almost doesn’t do it justice. There are almost 50 cargo ships waiting to unload but basically stuck out there for weeks. Why are all these cargo ships lined up and floating outside the Long Beach and Los Angeles ports?

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Good news = Bad news

Dear Mr. Market:

Last week was a microcosm of how stock market headlines can really lead you to hear one thing yet see another. For a while now we’ve been barking about how the FAANG stocks have artificially propped the market as there are some serious underlying health concerns. As a reminder for our newer readers, FAANG refers to the five major U.S. technology companies – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL). These household names have driven the markets and camouflaged some warning signs of risk on the horizon for quite some time. If you want a peek under the hood or a refresher on just what their impact, valuation, and market caps are relative to the broad market, please click here. (pay close attention to figure 18 which shows market cap with and without FAANG as well as Figures 13 & 14 for some relative earnings/revenue performance)

So…what happened last week? Why did the markets get hit so hard? It was indeed a rough week but then again not too many weeks feel all that bad when we take a quick look in the rear view mirror. (last year there were some mornings when the stock market was down literally -9% before you had your first sip of coffee) Albeit not a pleasant memory, don’t ever forget that (we’ll touch on why later in this article).

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Commodities Now! Too many dollars chasing too few goods…

Dear Mr. Market:

You’ve heard us barking about this before but as the world navigates its way out of the Covid-19 pandemic, it won’t be just the stock market that recovers. In many respects the market has mainly bounced back due to a lot of “sugar in the blood” from massive fiscal stimulus and has still primarily been led by some mega cap names. What’s brewing below the surface and actually could turn into something far more sustainable, is a boom in commodities.

Have you ever heard the expression “Even a blind squirrel find a nut once in a while?”

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All-Time Favorite Stock Chart

Dear Mr. Market:

It’s been a while since we’ve had to talk about you. The world has been focused on many changes which sometimes leaves you to quietly do your thing while we catch our breath. We’ve ushered in a new year, the United States has a new President and administration, and we’re finally seeing some light at the end of the tunnel with regards to the most surreal pandemic one could imagine.

How have you been… Mr. Market?

Up, down, sideways, and all over the place…That’s how.

Today we write you a quick note to share our all-time favorite chart as well as a reminder to all those investors who may fall prey to short-term memory lapses. The recent stock market sell-off is a great wake up call to the fact that markets obviously don’t just go up in a straight line. It’s a bit more than that though…

Below is our all-time favorite stock chart and we’re going to share why it’s important to look at this every so often.

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November 3, 2020

Dear Mr. Market:

November 3rd is looming large in many minds this year.  That’s right, it will be Dolph “Ivan Drago” Lundgren’s 63rd birthday!  Big news for sure, but unless you’ve been living under a rock, you know we also have a presidential election to decide.  

We know one of these three will be celebrating November 3rd.  How about the other two?

Okay, you may not be celebrating the great movie villain that day, but hopefully you do have a plan for voting.  Many investors are wondering if they need to have a plan for their portfolios, either leading up to or following election day.  There are interesting market factors to consider around election years, but are they compelling enough to act on?

In the most recent edition of “the Guide“, we focused it much on how the election will potentially pan out and what “Mr. Market” has done in years past as well as how that could play out in this very unusual environment. Click here to view the newsletter.

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Economic Outlook: The voice and face behind Dear Mr. Market

Dear Mr. Market:

We’ve written you hundreds of letters over the past decade and on occasion it’s nice to put a face with the name! Last week, Matt Pixa of My Portfolio Guide, LLC, was given the honor and opportunity to present an Economic Outlook to the Seal Beach Chamber of Commerce.

We share it with you here and look forward to your feedback and questions!

PS- Click here to view the entire presentation but the “meat” of the show starts exactly at the 10 minute mark. Enjoy!

Has the Stock Market reached Capitulation?

Dear Mr. Market:Worst Days Ever for S&P 500

We are living in scary times, as investors and as human beings in general. With stock markets cratering and the uncertainty surrounding Coronavirus, it’s hard to remember when things were this bad or uncertain. How and when will things get better?

Regarding the market, there are no absolute rules, but it’s generally agreed investors have to fully capitulate before a bear market downturn can find its low point and eventually turn back the other way. The idea is that all the bad news, expectations and fear have to hit their worst point, so there is finally nothing else to drive the market lower. After that, anything remotely positive or even just “not bad” starts the base for the ensuing bull, and the market can begin climbing again.

The dilemma is that no one sounds an “all-clear” signal to let you know when that point has been reached. Think about the low point of the last bear, March of 2009. President Obama was freshly inaugurated (cause for optimism or pessimism, depending on your political leaning). Chrysler, GM, and Ford were near bankruptcy. Unemployment was climbing. A massive stimulus package had just been signed, but no on knew how effective it might be. Investors wondered if their portfolios would ever recover to where they had been. Those were troubling times, but we all know the market turned sharply upward that month and the bull continued for 11 years. It’s all much more clear looking back in the rearview mirror but at the time it was certainly not so.

Returns 1,3,5,& 10 years after Worst Days

Stock Market returns 1,3,5, and 10 years after Worst 1 Days Ever

There is no saying what will bring about capitulation with the current market. In our last column we noted how drawn out the 2000-2002 bear was. Things could get worse before they hit their inflection point. But it will come…if it hasn’t already. Yesterday was the third worst day in the history of the stock market and many threw in the towel. We’ve also advised that panic is never a strategy, and keeping your head as an investor right now is absolutely the right thing to do. One cannot change the past or the fact that this event took on disastrous proportions that nobody could have imagined. This is different than a standard bear market in that it’s more like an unforeseen natural disaster but in this case one that is not specific to some other part of the world; it’s truly global and caught the entire globe flat footed.

Human instinct is to seek shelter when danger is imminent, and that gives us the urge to abandon our better instincts. Sell all your stocks! Go to cash! End the pain! This might provide short-term comfort or relief, but assuming you need some amount of growth to reach your goals, you now have the dilemma of when and how to get back in.

We would advise staying the course, while being prudent. Strategic rebalancing can make sense, but not drastic changes to your allocation. If you have a plan in place that you felt good about during the market highs a month ago, stick to it, and revisit it if needed. Heavyweight boxing champ Mike Tyson famously said, “Everyone has a plan until they get punched in the face.” The market is definitely throwing some serious punches right now. How will you answer the bell?

Lastly, we’re seeing two sets of behaviors right now; one group of people is scrambling to buy toilet paper while another is doing whatever they can to buy stocks. Mark our words in that this will be an inflection point and one where your decisions/behavior today will truly impact where you sit 10 years from now.

Panic is never a strategy…

Dear Mr. Market:5 years

Today marks the anniversary of the stock market bottom 11 years ago. How ironic is it that on March 9th 2009, when the market and everyone in finance was curled up in a fetal position, we now are witnessing a market drubbing like we haven’t seen in years on that same anniversary date? For those with short-term memory lapses, 11 years ago the Dow Jones went from 14,164 in October of 2007 down to 6,547 on March 9, 2009. The “Financial Crisis” of that period effectively saw a -53.77% decline in the stock market.  What has ensued since then happens to be the longest bull market run in history. Continue reading

Coronavirus and the Stock Market sell-off

Dear Mr. Market:https___blogs-images.forbes.com_joeljohnson_files_2018_04_market-correction-used-for-forbes-1200x720

It’s without question that the recent headlines surrounding the coronavirus have escalated and are rattling everyone’s nerves. The markets have already given back all the early gains of this young year. With natural concern certain questions arise: (1) will this get worse? (2) will it lead to a bear market? , and (3) what should one do right now?

With some of these questions we want to share the viewpoint from our favorite economist, Mr. Brian Wesbury from First Trust.

Monday, fear over the Coronavirus finally gripped investors, as both the Dow Jones Industrial Average and the S&P 500 index fell over 3% – the largest daily declines in two years.  These drops wiped out all the gains for the year.

Frankly, it’s amazing to us that the market had been so resilient!  Maybe it’s because recent history with stocks and viruses is that markets overreact leading to significant buying opportunities along the way.  Over a 38-day trading period during the height of the SARS virus back in 2003, the S&P 500 index fell by 12.8%.  During the Zika virus, which occurred at the end of 2015 and into 2016 the market fell by 12.9%. There are other examples, but they all passed, and the market recovered and hit new highs. Continue reading