That Was The Week That Was-3rd Week October

 

Zero!  It seems we’ve been swimming upstream all year only to see the Dow ending October 10th right where it was at the beginning of the year. Volatility, which was subdued for most of the year, has returned. One reason experts contend  is that central banks are out of lock-step with each other, along with economic headwinds coming from Europe. China fears of slowing growth are also in the picture along with Russia, Ebola and Middle East. On the central bank side the U.S. is on track to begin raising interest rates while the EU is planning on cutting rates. Some analysts are concerned about the return of King Dollar while other currencies are deliberately weakened. The week before last’s market slide was the worst since 2012. Certain sectors have simply been awful- small caps and energy come to mind. The large cap stocks have been fairly immune until lately.

How well did active fund equity managers do as compared to the indices up to October 10, 2014? Not so well as the above chart from Bloomberg and others illustrates. In my preferred equity fund list the best performers were in REITs, Healthcare, Utilities and Consumer Staples. Poorer performers were in Technology, Small Cap and Commodities. The Emerging Markets choice did very well as compared to the index. My select Mid-cap and Large Cap Funds also had a strong positive performance for the year. 

Emotion is the killer in these kinds of markets. Ben Levisohn in Barrons.com ‘Street Wise’, reports not to expect fear to subside anytime soon.The underlying causes of the rout are not as scary as they may seem. He also contends that a ‘steeper selloff may not be a terrible thing.’ It would take froth out of the market and refocus investor's attention on fundamentals. So far investors are ignoring both earnings and fundamentals.

Ride it Out! Said Larry Kudlow, on CNBC 10/10. He also said it was a terrific time to make those 401k contributions. Which I though odd since I thought most people ‘were’ making they’re 401k contributions.He did give reasons for his optimism which included rising corporate earnings, low inflation, low interest rates and a strong dollar. He said the strong dollar is going to attract capital from around the world now that commodities and especially gold are weak. Profits, he calls the mother’s milk, and expects them to continue to rise at about 5% per year.

Speaking of a strong dollar-domestic companies that derive a good portion of their sales/profits from overseas may get hurt in the currency trade.

Jim Cramer on Mad Money Gives 10 Steps For a Market Rally

• Containment of Ebola
• Have all stocks Go Down Not Just the Industrials
• Wrench Speculation from Market. The Cult Stocks Have to go.
• Oil Need to Find a Firm Footing.
• Tech stocks Need to Stabilize
• End Russian Sanctions.
• Great Beat in Corporate Earnings-
• The Technical damage needs to run its course
• Investors need a rally in commodities.
• Stop the ISIS Crisis.

CNBC 10/13/2014

Mixed Markets Tuesday. Dow was up 125 points in the early going only to close down a handful. The tug of war finally ended with the S&P 500 and Naz up, Gold, Oil and DJIA down.

Whispers that chip makers were leading the way into a bear market was discounted as one of the big players announced better than expected earnings at the end of Trading Tuesday, and provided good forward guidance. CNBC 10/14/2014 One investment pro called the firm’s earnings ‘robust’. This on the heels of a Barrons.com article on the demise of chip makers.

If you’re a trader get your buy list ready. Investors should be staying put.

 Yipes! The DJIA traveled both up and down a total of 1,268 points Wednesday in a wild day that had investors both wondering why and fearful. At one point, near mid-afternoon, the Dow was off 460 points! It was good old fashioned panic selling in the early going as (WSJ/Barrons.com reported 10/15) weak U.S. data, European bad news and Ebola all triggered a ‘whipsaw’ session. Analysts were at a loss to point to a single catalyst. It was almost as if someone yelled iceberg and it was everyone to the lifeboats. The CBOE Volatility Index, which measure implied volatility on the S&P 500 jumped to its highest level since December 2011.

In Barrons.com ‘Stocks to Watch’ the bad news should have been in the small caps, mused writer Ben Levisohn. In fact by the end of the day the small cap Russell 2000 finished UP for the day. And, not just a little but up 1%! So, the wondering if the Russell is the canary is this the beginning of the healing? Two sectors also ended up, Energy and Materials. Both have been beaten up with Energy down 13% and Materials off 8.4%. Citigroup’s Tobias Levkovich noted that signs of surrender are forming. He also remarked that, ‘…the froth of ebullience evident about a month ago is now very much gone’.  Pithy, eh?  Not exactly your ‘Irrational Exuberance’ but ‘frothy ebullience’ does roll off the tongue.

Not there-yet. Bottom? All Over by Halloween? Michael Kahn at ‘Getting Technical’ in 10/16/2014 Barrons.com, reported look for a drop to 1728 on the S&P 500 which at that level is support from the February 201 low and the September 2013 high. The S&P 500 is currently less than 8% from its all time high. October, Kahn laments, is living up to its fearful reputation of the 1929 and 1987 crashes. S&P closed Thursday at 1868.

Finally: Jim Cramer of CNBC on 10/16/2014 gave reasons he believes the Ebola fears are ‘rattling’ the stock market. He admits that there are other worries in play but the deadly virus is a big reason why so many traders are selling equities. Especially, he points out when the second nurse was diagnosed with the disease the markets tanked within minutes of the news. Blame is being spread on confidence of the U.S. government and the Centers for Disease Control. ‘The government has created a lack of confidence in its response.’ Cramer said.  Especially worrisome is the comments by the CDC that the disease isn’t airborne but the CDC would by have issues if someone was within three feet of an infected individual for any sustained period of time. Like on an airplane?!

 

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

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