There has been a lot of noise, confusion, misinformation and just plain fear tactics strewn about on the coming Fed interest rate hike and the market reaction. This is nothing new. The spreading of disinformation benefits some and also those that want to see stocks cheaper.
No One Knows if a Market is Correcting or Crashing Until We’re There.
What we do know is that there hasn’t been a 10% market correction for some time. We are way overdue. Most Market Corrections, like controlled forest fires, are good things. This week I’ve devoted most of the time and space to help you understand where we are and what could possibly happen. As we move closer to a Fed rate hike I’ll keep you abreast on what’s happening and if there is anything special you should do. Here’s my compilation of news for the week…
WHAT TO DO IN CASE OF A SIGNIFICANT 20% MARKET CORRECTION. There are those that’ll tell you to sit tight, others that it’s best to sell; and then there are those that think you should have some cash on the sideline and buy when others are selling. My opinion is that if you know what you’re doing all three make sense. It is acceptable to get out of the market if you are able to time your selling and buying dead-perfect. In other words sell just as the market starts to correct and buy back in at the very bottom. Unfortunately, most all of us cannot time that perfectly. Of course timing also involves creating a taxable event and assorted brokerage fees, something the ‘talking heads’ don’t spend a lot of time explaining. Almost all corrections are considered healthy corrections because it is a natural part of the stock market. Those corrections that fall 20%+ are of a more serious nature. The problem is not knowing if a correction is ‘normal’ or a harbinger of a severe market slowdown. There are investment methods that can limit the downside risk of a correction. For example a mutual fund with its diversification may fall far less than an individual stock. Shares in companies that pay dividends may not correct as much as those that do not pay a dividend. Then, of course, there are bonds and other fixed investments that do not fall as far as equities. For the vast majority of retail- non-professional- investors a buy and hold is a sensible alternative. All it takes is guts and a ‘grin and bear it’ attitude through the tough times. One thing to remember, and see the chart I’ve attached from Wells Fargo, is that those that try to ‘time’ the market don’t time well. And the ‘timers’ often miss some extraordinary days. For example if you ‘missed’ the best 5 investment performance days between January 1, 1994 to December 31, 2013 versus staying the course you would have missed out making a lot of money. Understand that this is not five days in a month, a year or a decade. But missing just five days out of 20 years! 
Source: Standard & Poor’s Stocks are represented by Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stocks market, Past performance is not a guarantee of future results. Performance shown is not indicative of the performance of any particular investment. This illustration from Wells Fargo article ‘How to Weather a Stock Market Correction’ on the web site Wells Fargo Financial News. The above chart supplied in the article depicted a time line from January 1, 1994 to December 31, 2013. The chart illustrates how a $10,000 investment would have been affected by missing the market’s top performing days over that 20-year period.
Poor Jobs Report Friday Starts The New Month Off Rocky?
If You Were To Bet On Which Day The Market’s Would Be Negative Monday the 6th Would Be The Day- And It Would’ve Fooled You! Picture this: A crummy jobs report, a long weekend and not so special results overseas ending up with a negative pre-market. That would’ve been, you’d think, the catalyst to an awful day. It was for about a Nano-minute. The Dow was off 100 points and by noon, while I was spooning soup and gumming saltines, the Dow reversed itself and was up triple digits. You can see that trying to time short-term is difficult, if not impossible, for the average investor.
Oil Exploration Stocks Have Bottomed, reported Michael Kahn in ‘Getting Technical’, Barrons.com 4/6/2015. ‘…every bull market has to start somewhere,’ Kahn wrote, ‘and there are plenty of technical signs to argue at least that the bear is over.’
Oil Prices Will Stay Low Longer- Goldman Sachs 4/7/2015
Investors Business Daily reported that the S&P 500 Earnings are Expected to Fall – First Time Since ‘09. The reason is that exporters and energy companies will drag down earnings. Sectors that are expected to do well: Financials, Industrials, Health, Consumer discretionary, S&P 500 total ex energy and Technology. Consumer staples, telecom, materials, Utilities and Energy (the biggest drag), are all expected to see negative results. 4/6/2015 IBD.
Made me smile 
Stocks are in a ‘stealth correction’, whatever the heck that is, according to Ralph Acampora, director of technical analysis at Altaira. Acampora is a true advocate of The Dow Theory. He is troubled with the underperformance of the transports, which have trailed the S&P this year. The Theory is that if either need to make a high or low the other does too. He also believes the rate hike would precipitate a selloff. CNBC 4/7/2015
Jim Cramer added his voice to the concern regarding the transport index saying that while the Dow averages have been up, transports have been performing terribly in relation to the rest of the market. On his show, Mad Money, Cramer asked his technical colleague Bob Lang what he thought. Lang said he thinks there could be more downside ahead, especially when the DJ Transport Index fell below its 200-day moving average for the first time since October. CNBC.com 4/7/2015
Wednesday’s markets started off higher and closed down. Morgan Stanley managing director Adam Parker reiterated his belief that despite current earnings and U.S. dollar headwinds, the stock market is in the middle of a long expansion that could last until 2020. He repeated that the S&P 500 Index could hit 3,000 by 2020. CNBC 4/7/2015
We May Be in A Secular Bull Market So Just Enjoy The Ride. On my radio program, many moons ago, I discussed a Secular Bull and Bear Market. The one thing that the average investor doesn’t understand about either of them is that they last an awfully long time. The average is 17 years, according to experts. The latest Secular Bull was from 1983 to 2000. Within either a Bull or Bear Secular market are corrections either way. The one thing to remember is that in a Secular Bull the markets may fall but always correct and go higher. In a Secular Bear we may see indices go higher but always finish lower. The last Secular Bear was 1966-1982. Stocks finished in 1982 basically where they were in 1966. Secular Bear markets offer excellent buying opportunities for an extended period of time. Additional Info from Investopedia & Joshua Kennon’s Investing for Beginners Expert.
CNBC Thursday at the Closing Bell discussed the possibility we have not recovered from a Secular Bear Market.
We can only tell if we were in one or the other is after it is over.
VIX is trading lower than it was last October. The volatility index, a measure of future implied volatility of the S&P 500 Index options, is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index. It is also called the ‘fear index’ and a measure of the market’s expectation of volatility for the coming 30 days. I got tired of some financial experts screaming correction that I decided to check and see if there was any real ‘volatility’ as expressed by the VIX. The fact that the VIX is trading approximately 40% lower than it was last October, 2014 and (ending April 8, 2015), told me that the Street appears to be relatively unconcerned.
If everybody is so darned concerned of a stock market crash why are we seeing takeovers booming? The M&A volume is on track to make it the second biggest year in the history of Mergers and Acquisitions. The WSJ reported April 8th that companies are gaining confidence about the economy, using their stockpiles of cash for future growth and getting boosts from ‘low interest rates and a surging (yes, they wrote ‘surging’) market! Executives and business directors know these conditions won’t last forever. In 2015 there have been 15 deals announced in excess of $10 billion. The current M&A wave, reported the Journal, is centered around traditional company to company mergers. And sometimes the strength of the dollar doesn’t hurt when looking to do acquisitions outside the U.S. Here’s a chart of where the action is: 
WELLS FARGO ARGUES ‘SHORT-TERM BLIP’ 
FOR LOWER EARNINGS THIS QUARTER. Fundamentals still look promising Wells argues in a Barrons.com article posted April 8th in ‘Wall Street’s Best Minds’ section. Lower first quarter activity due to record snow and cold in most of the country. U.S. Large Cap Dividends increased 14.8% year-over-year in the first quarter. Investors, Well states, will see this and quickly look through a short-term blip in earnings. (of course it’s a blimp. does anyone know what a blip looks like?)
Looking to Hedge the Dollar? Nothing Fancy? Just up your allocation into Mutual Funds that invest in Foreign Companies. When the dollar weakens you’re investment should strengthen depending on the fund management philosophy and holdings.
Do You Know Someone Who Should Be Getting This Blog & More Importantly Talking To Me? Send me an email with their name and best to reach phone along with an email address if you know it.
Finally- Friday Morning CNBC reported European shares hit 15-year peak. 
QUESTIONS CALL PAUL @ 586 295 0430 OR WRITE HIM @ pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
SECURITIES OFFERED THROUGH WESTMINSTER FINANCIAL SECURITIES, INC. MEMBER FINRA/SIPC.
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