Bad News First: Markets continued their selloff with Tuesday being the first day when it became especially ugly. There was a brief attempt at a rally early in the day but quickly evaporated and the tumble escalated into a full rout with the Dow down 273 points at the close. The Nasdaq also continued its slide. According to Kevin Marder at MarketWatch.com the Naz has not printed an accumulation day, or session of ‘concerted buying by large participants,’ in almost five weeks. Nervous investors were following similar selloffs in Europe and Japan. The Russell 2000, the small cap index, saw a continued selloff of almost 1.7%. Experts often point to the small cap index as a leading indicator of the overall market. Signs of a slower growth in China along with renewed slowdown in Europe, especially Germany; and continued economic troubles in Japan all have contributed to increased volatility. While the U.S. economy is attracting investor dollars there is a worry that the large U.S. firms, which generate a huge percentage of their sales from overseas, will have a slowdown. info from CNBC, WSJ, Bloomberg and MarketWatch.com 10/7/2014 and 10/8/2014.
Thursday There Was Some Serious Profit Taking as The S&P 500 Index Failed to Stay over Key Support of 1950. It closed at 1928 off 40 points for the day. The Dow was off 334 points and the Naz fell 90. Within seven days the Dow has moved 2,000 points in total up and down directions. Still, on CNBC Thursday, several investment pros said the selloff was no reason to panic. Kirk Spano in his 10/9/2014 MarketWatch.com post wrote that this was not a collapse so investors should buy the big trends. ‘The stock market correction is closer to the end than the beginning.’ Spano points to the fact that small-cap stocks are already down 10%, Energy, depending on specific industry, is down 20-30%, and the natural gas index is off 30%. The large caps have withstood most of this correction, he points out. He also recommends buying the current trends and points to one beaten up sector in particular. Those investors interested in knowing what that trend is call or e-mail me.
Here’s more recap of last week’s news
Oil Prices are down and likely to fall more as discord among OPEC members is turning into an old fashioned Texas gas war. Add into the mix the recent ‘New’ American Oil Boom and this should be a pretty nice holiday season for us with low fuel prices allowing more for spending and travel…unless you heat with natural gas, in which case, home heating costs could be higher than last year. First oil prices are falling because a petro glut and discord among OPEC ministers. Rather than cut production members are slashing prices for market share. This is causing fracturing in a once powerful union. According to news reports members don’t get along and there is no harmony of purpose. Saudi Arabia lowered its prices for next month’s delivery. On the natural gas front, you’d think we’d be swimming in the stuff but more seasonal demand for natural gas has left stockpiles at below their five year range. So with expectations for another nasty winter home heating bills can go higher. Overall the good news with lower oil prices inflation will be subdued as petroleum is a huge contributor. Info gathered from WSJ 10/3/2014, Barrons.com 10/3/2014 and CNBC 10/2/2014. Photo of Saudi oil minister arriving at OPEC meeting in Vienna June, 2014.
Don’t Read Too Much Into The Week Before Last’s Jobs Report. Bob Johnson, of Morningstar, shared his insight 10/4 in a Morningstar article, that concluded that the markets may have read more into the jobs number than was actually there. The year-over-year growth rates are still in the 2% range. The results are good and not great.The following chart gives readers a better understanding that while things have improved their not something one would say is a great recovery.
Byron Wien in a Barrons OpEd 10/2/2014 wrote that there was much to worry about. Right now market valuations are not in bubble territory but he worries if earnings fall short of estimates what could happen. That doesn’t seem to be anything happening at the moment. Analysts are increasing their estimates on earnings and so investors shouldn’t be concerned now, Wein writes. Housing is an area that Wien finds troublesome, especially with the improvement in employment (under 6%), and with continued low interest rates. Housing is a key component and deserves close attention. Internationally Wien is especially concerned with geopolitical forces such as ISIS, Israel/Gaza, South China Sea and China’s ambition of extending its fishing and drilling rights into neighboring Japan and the Philippine waters, plus the breakdown in nuclear weapons negotiation with Iran. Finally Wien points home to the ‘dysfunctional’ democracy we have here in the United States. It may appeal to some ‘gridlock’ zealots, he writes, but its not constructive. Wien formerly of Morgan Stanley and currently Blackstone Advisory Vice-President.
Rival bond firms will be out bidding for business that is sure to or already has 
left PIMCO in the wake of Bill Gross’ leaving the firm. The amount of assets available, and if garnered, is enough to change a bond manager’s world for years to come. One bond manager calls it a, ‘Massive food fight.’ 
One public pension fund was contacted that had $1 billion invested with PIMCO. According to the WSJ this one firm did not think of moving its assets. (WSJ 10/4/2014) It’s reported that the fund Gross managed already some $23.5 billion of assets has left. You can bet, even without verification, that a goodly percentage is following Gross to Janus. How large was the bond portfolio that Gross managed? According to Morningstar the Total Return Fund had about 14 cents for every dollar invested in taxable bond funds. Out of 28,000 401k plans had $88 billion invested in the fund. SOURCES WSJ, CNBC, BLOOMBERG 10/3 10/4
Gold lower on dollar strength. The metal is off 9% over the past 6 months. Doomsters advocating buying gold may now be called ‘contrarians’?
Stocks Usually Pop After Midterm Election.
MarketWatch.com reported on Sam Stovall,equity strategist at S&P Capital IQ, study of historical stock market returns six months after mid-term elections.Going back as far as 1944 Stovall discovered not only a pattern plus a reason, not a guarantee, for the market going higher. The prime reason, according to Stovall, is that the markets dislike uncertainty. Once that uncertainty passes the November through April average increase is 15.3%, and the frequency, according to Stovall’s study, is an impressive 94% of the time. MarketWatch.com 10/06/2014. Chart S&P Capital IQ.
Stocks Jumped to close over 270 points on the DJIA Wednesday after Fed meeting minutes showed more ‘focus on slowing growth overseas and lessening inflation pressures. Investors say the U.S. economy looks better than those overseas, which should support continued but moderate gains in stocks over the long term. WSJ 10/8/2014
Investors will always find it easy to sell and not so easy to determine a point to buy back in.
According to the charts, Michael Kahn reports in Barrons.com 10/8/2014, the Bull market is faltering and the rally on Wednesday didn’t erase the bearish signals. The rally actually sent the market to fresh closing lows. Investors Business Daily 10/9/2014 shows the market 100% in correction. WSJ reported not much action in the small caps. 10/9/2014. Which is exactly what happened on Thursday as the global sell-off continued.
Questions call Paul @ 586 2950430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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