It seems like everyday I come to work, turn on CNBC and listen to the hosts discuss how they are worried about Greece, Spain and Facebook's IPO - and the stock market goes down. The frustrating part of this is that none of our clients are invested in Greece or Spain and I only have one in Facebook.
Historical (not hysterical) viewpoint
One of the ways that I try to remain calm during these stretches in the market is by reminding our clients that markets (i.e., the S&P 500, the Dow) historically can and will correct 10% at any given time for any given reason. Obviously, the current reasons are Greece, Spain, Facebook's IPO and as of last Friday, the jobs' numbers. Since April 2nd, the S&P 500 has gone from 1422.38 to today's 1286.88. That is a decline of 9.5%. Usually these things end with some kind of prolific sell-off day. Art Cashin, head floor trader at UBS Financial, calls those days a "capitulation" day - when people give up and sell (usually the worse day to
sell). He also coined the phrase "Turnaround Tuesday", where sometimes we can go from down 250 Dow points to up 150 points. So hang on these next couple of weeks - it could get a little more exciting.
What goes down, just keeps going???
Many of our clients ask "What could stop this decline?" No one knows but let's look at a couple of possibilities:
Quantitative Easing #3 - Remember "Cash for Clunkers" and GM's bailout? QEs are usually temporary stimulus that adds to our long term debt. Kind of like the sugar high I get from chocolate, but it also adds to my waistline - you get the bad with the good.
Change in Washington - Don't hold your breath. Regardless of your stance on the upcoming elections I think we can all agree on this quote from Dan Mitchell - "Politicians generally do the right thing only when all other options are exhausted."
Europe - I think our best bet here is that the EuroZone does not completely fail. Believe it or not, I think the market sentiment has already factored in a complete failure of the EuroZone so anything less than that could be seen as a positive.
Jobs - Bingo! What a concept! If the market's reaction to Friday's jobs numbers are any indication, this is the one area that could really impact the market. Maybe the numbers will get some action from Washington and get some business-friendly initiatives started.
And finally, China is slowing; India is slowing; Investor sentiment is at an all-time low (which is actually a contrary indicator which is a good thing).
Every cloud has at least one
There are three silver linings that this market has provided - lower mortgage rates, a pullback in Apple's stock price and lower oil prices.
Mortgage Rates - On the morning of June 1st, the yield on the 10-Year Treasury was at 1.46% and the yield on the 5-Year Treasury was at .60%. Mortage rates are at their lowest points since the 1950s. If you have a mortgage and you are in a position to refinance, you should. If you need some contact names, please give me a call. We have been able to help several of our clients by connecting them with the right mortgage folks. These clients have reduced their monthly mortgage payments and the process was relatively painless.
Apple - Many of our clients will be called away from their Apple positions in July. This market pullback has also pulled Apple's stock price back. We will be strongly urging our clients to repurchase Apple in July.
Oil - Oil has gone from over $110 a barrel to $83 a barrel in a little over a month. We could see gas prices below $3 soon.
I continue to believe that our use of the "buy stock/sell option contracts" strategy outperforms in this environment. This morning, at 9:40 a.m., the Dow is down 150 points - Verizon was down 1 cent, AT&T was up 2 cents and Southern Company was up 2 cents. By sticking with dividend yielding stocks and options contracts, we stay the course.
I hope you have enjoyed my "musings" and I will try to provide another update in a few weeks, if not sooner. As with anything financial, there must be fineprint and disclaimers so here it is - The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy mentioned herein. Options involve risk and are not suitable for all investors. Past performance is no guarantee of future results. Member FINRA/SIPC.