It seems you can’t get away from the “fear trade” during these last few weeks. It is all over the news, in your email inbox, on social media, etc… it is hard to tune it all out.
Remember, we have been here before when panic drove the markets, and some investment managers are falling in again, trimming back their equity exposures in a time where the economic fundamentals do not support such a move. Currently, there are many causes to this recent pullback, not the least of which is time (we were due for a correction in the market). But, as you listen to the pundits and talking heads, they only seem to be focused on what will get them ratings, and that is usually fear.
We are continually looking at the economy (domestic and international) and the prospects for the markets overall, over time. Based upon that analysis, this last pull back was an opportunity, just as the last one was. We are still not that far from the all-time highs achieved by the markets a short time ago and the intraday movements may exceed them today! This tumult will pass and our economy will continue forward, but the volatility in the equity markets will be here until several fears settle down. Currently the fear factor seems to be the most prevalent issue moving the market, Ebola, ISIS, Ukraine are all adding to fear. The rise in value of the US dollar is helping the Fed back off on their tightening plans, and corporate earnings are starting to come in (positively). And we are in October, which has historically been a tough “transitional” month for the markets.
On the other hand, we have extraordinary drop in the cost of doing business in the US. Oil is down significantly and will be a boost to international consumer spending. Natural gas is still plentiful (and local) providing us with lower manufacturing costs and bringing jobs back to the US. The US dollar is strengthening giving us the ability import more goods at lower costs which should help drive US consumption. The employment picture keeps getting better.
Our sense is that you are seeing a lot of profit taking on the fear. This great article recently ran on CNN Money:
“Is it time to exit stocks?” by Heather Long
That sums up our thoughts quite well.
We have a very diversified long-term investment approach with an asset allocation that is designed to provide you with a reasonable return that will meet your needs. These down trends and adjustments happen. They will always happen. But you have plenty of time to wait a pullback out and watch the markets continue forward.
Don’t get caught up in the hype or lose track of the facts!
Our friend, John Tener, shared the following facts with us for us to share with you:
1. The U.S. now had had 63 straight months of economic expansion, including 54 straight months of private sector job growth (the best recovery in almost any measurable way since FDR).
2. The 54 straight months of private sector job creation is the longest period of job creation since the Labor Dept. began keeping statistics.
3. Unemployment had dropped from 10.1% in October, 2009 to 5.9%, and is projected to reach 5.4% by the summer of 2015.
4. The stock market has seen steady growth since early 2009, with the Dow Jones average reaching a record 17,098 this past August, 2014. 401k retirement plans, mostly affecting middle-class Americans have directly benefitted.
5. The Federal deficit continues to shrink, and has been reduced by two-thirds since 2009. In 2009, just after President Obama was sworn in, the deficit was $1.4 trillion. the 2014 deficit is projected to be around $500 billion, the smallest since 2007.
6. Federal spending since the beginning of 2009 has increased only 1.4% annually, the lowest rate since Eisenhower. (Under Reagan it was 8.7%; under G.W. Bush it as 8.1%.)
7. For 95% of American taxpayers, income taxes are now lower than just about anytime in the past 50 years. (The only people whose income taxes have gone up are those making $400,000 per year or more–less than 2% of the population).
8. Our dependence on foreign oil has shrunk since 2009 due to record domestic oil production and vastly improved fuel efficiency standards for cars and trucks.
9. Since 2010, at least 7 to 10 million more Americans now have real, effective, affordable health insurance, which will inevitably lead to better health, more work productivity, less time loss, and longer lives.
10. Health care reforms (under the ACA) have added years to the life of Medicare, which was on course to exhaust its funds by 2018. It is now fully solvent to a projected 2030.
11. Health care reforms (under the ACA) have lead to the slowest rate of increase in health care costs since 1960.
12. There are now fewer soldiers, sailors and airmen in war zones than at any time in the last 10 years.
13. There have been zero successful attacks by al Qaeda on U.S. soil in the last six years.