Category Archives: Market Correction

Brexit too shall pass…

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Dear Mr. Market:

You hate uncertainty; that fact has been established from the day you began trading. If the rest of the investing public hasn’t heard about “Brexit” vs “Bremain”…it’s not necessarily a bad thing. There is always something to worry about and now with a vote by the United Kingdom to leave the European Union the potential implications and chants of uncertainty will continue to create worry and panic.

Ironically enough, even amidst all the doom and gloom, the world is not that much different than before the vote. Although the U.K. surprised many with its vote to leave the EU, this decision and the potential fallout will take a couple of years to fully play itself out. Even though there will clearly be political uncertainty and initial volatility (which is natural)…the UK will have two years to negotiate the terms of its exit and establish a new relationship with the EU. Although there won’t be a shortage of opinions, this doesn’t imply an automatic death to the stock market!

It’s times like these that are EXACTLY why people overreact and make critical mistakes. Once people get over their initial reaction (shock, surprise, fear etc) the markets will see relief in knowing there is a result and a definitive decision. In other words…there will be some basic element of certainty and that allows markets to naturally correct and go back to moving based on actual fundamentals as opposed to speculative forces or fear.

What should one do in the near-term and will this lead to something worse? Continue reading →

March Madness: Final Four Investing Bracket 2016

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March MadnessDear Mr. Market:

The entertainment and shock value you provide us with the stock market might meet its match over the next few weeks. Are you ready for some surprises and wild finishes? That’s what March Madness brings each and every year! It’s also an opportunity to take a high level view of the current investment environment with what lies ahead.

Six years ago we became the first Registered Investment Advisor to use the NCAA basketball tournament as a way to show our readers a forward-looking view on the stock market. We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.

This year we will dive right into our investing bracket looks and how we think the remainder of 2016 will play out.

Click here to see the entire bracket.

To set the table let’s take a quick moment to recall last year and the undefeated Kentucky team. They came into the Final Four 38-0 and were a virtual lock to win it all but as you may remember the Wisconsin Badgers shocked everyone and provided the surprise millions of fans tune in for every year! This type of “upset” is exactly how we think 2016 will pan out in the Large Cap asset class.

Large Cap

Five years from now people will look back at 2015 as a year that the stock market extended its bull market run for one more year. Investors will exhibit a short-term memory lapse and forget that it actually was a very rough year with heightened volatility, the first correction, and a market that actually turned in negative numbers if you looked “under the hood”. The problem is…most people will not remember this and only look to see the S&P 500 finished positive +1.38%.

Without the “FANG” stock phenomena, however, 2015 would have been very negative. In other words, Continue reading →

John Hussman says we are headed for a stock market crash!

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UnknownDear Mr. Market:

If you’re smart…does it imply that you’re always right? In many instances that may often be the case, but when it comes to investing, some of the most brilliant people on the planet are reduced to buffoons by irrational and unpredictable markets. When you add in a 24/7 media cycle and the fact that human beings are emotionally driven creatures…your IQ (or stubbornness) can actually work against you.

As huge fans of behavioral finance we also want to once again remind you that your own brain (whether it be “smart” or pedestrian) is wired to connect certain dots even if the conclusion is wrong or completely random. One famous adage will serve as the theme for this entire article:

“Even a broken clock is right twice a day.”

Take a brief moment to read the following article that surfaced last week: Continue reading →

China kicks off 2016 with a New Year’s hangover!

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New Year 2016 #2Dear Mr. Market:

Happy New Year and welcome to 2016!  With a new calendar comes hope and optimism! 2015 was a challenging year for the equity markets, it was actually the worst year since 2008 and if you had exposure to the energy sector (as almost everyone does) it was one of the worst on record. Investors were waiting for a new trading year with great anticipation, much like children looking at gifts waiting under the Christmas tree. Well… take a deep breath, the market is getting spanked on the first trading day of the year opening down over 2% thanks in part largely due to China. What does this mean for the rest of 2016? Continue reading →

Is this the much anticipated market correction? Is the sky falling?

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chicken littleDear Mr. Market:

Have you heard of the popular children’s story “Chicken Little”? The story begins with an acorn falling on a chicken’s head prompting him to run around declaring that the world is coming to an end, repeatedly stating, “the sky is falling!”   The media has been acting much the same the last few weeks, prompted by the sell off in the equity markets. We’ve discussed the ‘herd mentality’ before, markets like this cause even the most experienced investors to act irrationally and make decisions based on emotions – don’t allow yourself to do the same.

Recently the stock market has been a bumpy ride, it is now entering correction levels. Over the last month the S&P 500 has dropped over -4% and international markets are down as much as -10% or more.   These numbers are alarming but let’s take a moment to keep things in perspective. The S&P 500 is now slightly negative for the year. Last summer (2014) the market was down as much as -7% at one point, did the sky fall then? No, it closed the year up +13%.

Below is a chart from JP Morgan Asset Management, it illustrates the fluctuations that the markets exhibit on a yearly basis showing the low points and where it finished each year. Going back to 1980 the S&P 500 has returned positive results 27 out of 35 years. Here is an even more eye-opening stat – every year since 1980 the S&P 500 has dipped into negative territory! The average intra-year low point for the S&P 500 going back to 1980 is -14% yet the markets finished with average year-end return of 11% over the same time frame. That is not a typo – take a moment to look at the chart below to help put this in perspective!

Intra-year decline chart

This market could get uglier before it gets better. Fingers are being pointed in various directions as to what or who is to blame: The Fed, China, the Energy Sector, Greece and the Euro Zone…and the list goes on and on. The bottom line is that every year there are new economic and global factors that impact the markets. By no stretch of the imagination are we trying to minimize or discount the impact the markets are having on investment portfolios, rather than focus on what has already taken place, let’s look forward. Continue reading →