Stocks Dip For The 2nd-Straight Month
/Have a great month,
Brian E Betz
Principal
Stock Market Win Streak Snapped
/Have a great month,
Brian E Betz
Principal
Stocks Make It Five-Straight Monthly Gains
/Have a great month,
Brian E Betz
Principal
A Stellar Start To Summer For Stocks
/Have a great month,
Brian E Betz
Principal
Home Values And Stock Prices Gain Momentum
/Have a great month,
Brian E Betz
Principal
Stock Market Teases A Summer Rally
/Have a great month,
Brian E Betz
Principal
The Historic Collapse Of Silicon Valley Bank
/Have a great month,
Brian E Betz
Principal
Money Supply Is Shrinking For First Time Ever
/Have a great month,
Brian E Betz
Principal
2023 Retirement Plan Contribution Limits
/Have a great month,
Brian E Betz
Principal
Recapping A Historically Bad Year For Stocks And Bonds
/Have a great month,
Brian E Betz
Principal
Stock Market May Be At A Crossroads
/Have a great month,
Brian E Betz
Principal
The Truth About The Stock Market Decline And 7 Ways You Can Take Advantage Of It
/Top Of Mind...
I have so much to say about the past two weeks that I really do not know where to begin. Let's start here: Which of the following statements sounds better to you?
"The U.S. stock market has plunged -7% in the past six days."
Or...
"Through the first six weeks of the year, the U.S. stock market is down -2%."
The second one, right? Both are factual, yet, your perception of the market will be largely framed by which facts you hear and how those facts about the market are editorialized to you. Context gets totally lost in an era where media outlets are competing for eyeballs and clicks. That does not mean that the past two weeks have been rosy. Far from it. But it also does not mean that financial armageddon is upon us, either.
Want to keep score? Stop counting points: On Monday when the major indexes fell roughly -4% apiece, here was a major headline...
The words "biggest one-day drop in history" is not only misleading, but it is factually incorrect. It was the worst day since August, 2011 when you look at the percentage change, which is the only calculation that matters. The number of points a particular index rises or falls is irrelevant because the stock market has gradually risen over its entire 100+ year history. This means that each additional point the Dow or S&P 500 rises or falls becomes less significant to whatever period you are measuring -- that day, that week, that month, etc.
The math is pretty simple. If the S&P 500 loses 100 points from a starting value of 1,500 then it has fallen -6.7%. Down the road if the S&P loses that same 100 points from a starting value of 2,500 then it has only fallen -4.0%, nearly 3% less severe of a loss. But of course you should not let facts and basic math get in the way of a good headline...
Yes, the past two weeks have been bad. But context is rarely given because, frankly, much of the financial media is lazy. My advice here would be to focus on percentages. Points are pointless.
What We Are Doing: I want to address how we are reacting to the recent market decline before sharing some options for you to consider.
Most client accounts carry a cash balance somewhere between 20% and 40%. These are funds we obviously want to reinvest, but given current conditions we are being patient. I said last week that the long-term stock market uptrend was not broken based on one week of activity. That uptrend is in more jeopardy now that the S&P encored with a -5% loss this past week.
We would like to invest the cash available into bonds, but the bond market has been in decline too (which is something I warned about a few weeks ago). The scenario that most concerned me after last week was one in which stocks continued to fall and interest rates spiked, meaning bond values fall too. Because that is exactly what has happened, patience is more important than rushing to try and pick when we think bond prices will bottom. Ideally it would be great if bond values were rising right now, as they often do when stocks fall. But they aren't. So cash is king for the moment.
What You Can Do: Here are 7 ways you can take the lemons the market has given you and make lemonade...
- If you have been sitting on cash because you wanted the market to dip before investing, is this what you have been waiting for? If not, how much further would it have to fall before you put new money to work? Whatever you do, do not freeze. If this sounds like you, be ready to act. You wanted the ball. You got the ball. You are wide open. Will you shoot?
- Along those lines, I read a terrific idea from industry adviser/pundit Josh Brown, who proposed something on his "Reformed Broker" blog. When market losses like this occur, pick a handful of blue-chip stocks that you think are great long-term investments to own. Pick a price that is well below whatever each one is currently at. Then, in your brokerage account (or IRA), set a limit order to buy them at those bargain prices you've identified. The bad news if those prices are eventually reached is that it likely means the overall market has tumbled even further from where it sits today. But the good news is that it means you likely acquired those shares at what could end up being massive discounts in the long run. Call it a potential hedge in the grand scheme of things.
- If your financial situation has improved and/or you are willing to take on more investment risk, call me. We can look at using the cash currently sitting in your account to purchase stock funds rather than bond funds when the time comes to reinvest. The idea being that stocks rally stronger than bonds do when both asset classes eventually rebound. Additionally, if you want to do my #2 suggestion above but do not have the desire to set up a brokerage account on your own, we can help you with this process of investing new funds. After all, it is what we do.
- Increase your 401k contributions. This year you can contribute up to $18,500 if you are under age 50 and $24,500 if age 50 or older. If the percentage you are deferring comes up short of those limits, consider increasing it.
- Make a lump-sum IRA contribution. You can contribute up to $5,500 for 2017 ($6,500 if age 50 or older), if done by April 17th. You can contribute the same amounts again for 2018. Just make sure you meet the requirements. I can easily help you figure out whether you qualify for a 2017 contribution.
- If you invest in a 529 college savings plan consider making a lump-sum contribution, particularly if your child or grandchild is not close to going to college.
- If none of these six ideas appeal to you despite having the cash or budget to do them, okay, fine... Increase your mortgage payment or other debt payments. Get those paid down quicker, especially if the interest rate associated with the loan is variable and subject to increase in the future. If what I have been saying about long-term interest rates continues to materialize, your loan could become more expensive to finance in the future.
If you have questions on any of the above, call me. More on the state of the market below.
In The Market...
The S&P 500 fell -5.0% this past week. Here is how the individual sectors performed:
(price data via stockcharts.com)
Another week of red across the board. Every sector was negative, and as mentioned above, the S&P index is now slightly negative year-to-date (down -2.0%). The bond market continued its slide lower as well, as long-term interest rates climbed higher and remain at highs not seen since late-2013.
The S&P 500 did something it had not done since Oct. 2016, which is fall below its 200-day moving average price. The 200-day moving average is one of the pillars of our investment process. It is the best reflection of the long-term trend of the market.
We look for two things in regards to the 200-day moving average. 1) We want the price of any given investment to be above its 200-day average price; and 2) We would like the slope of the 200-day moving average itself to be rising over time. When both of these conditions are met, that is most ideal. Take a look at the current price of the S&P relative to its 200-day moving average (the pink line):
(created in stockcharts.com)
Also shown on here is a trend line that I believe is relevant (the blue, dashed line). The price of the S&P index closed this past week just above both this trend line and its 200-day moving average. That is crucial if the bleeding is going to stop.
If we take the same chart but blow up the timeframe from an 18-month view to a 3-year view, you will notice how the slope of the 200-day moving average (pink line) started rising back in June 2016. It is no coincidence that it was right around that time when I became bullish on the stock market again. You will also notice that by that time, the price of the S&P 500 had already been above the 200-day moving average for nearly three months. Here it is:
(created in stockcharts.com)
The positive view: Once both those conditions were met (the price climbed above a rising 200-day moving average) it was lift-off for the U.S. market. I would contend that the S&P 500 now having fallen to its 200-day moving average could set off a new rally as well. It is one of the primary points that we consider to be "price support", where the price can get buoyed and then begin to rise from there. So far that has been the case, as the S&P touched down to the 200-day moving average on Friday before bouncing higher to end the week.
The negative view: If the S&P 500 falls below its 200-day moving average, market conditions will become more problematic. Conditions are likely to be choppy for the foreseeable future anyway, but the risk-of-loss increases significantly if stock prices collectively break below their long-term moving average. Why? Because it would reflect that the collection of 500 companies that comprise the S&P, thus comprising the broad market. are moving lower in unison. And, because the 200-day moving average is a popular metric among professional investors, it would likely trigger more selling activity if the price does in fact break below it.
The bottom line: The rising price trend remains in tact, although it is hanging on by a thread heading into next week. I still look at this as a buying opportunity, but that could change very soon.
In Our Portfolios...
In Financial Planning...
I got this reminder the other day from the Social Security Administration (SSA). At first I quickly deleted it, before restoring it from my trash folder. You would not have received this notice unless you established an account on the Social Security site, which you can do here.
If you do not have an account on the SSA site, create one (it's free). I then encourage you to check your reported wage information for accuracy. It is NOT unusual for wage information to be incorrect. Since this wage data directly impacts the amount of future Social Security benefits you will receive (if still working), it is a good idea to keep records of your income each year and crosscheck it against what the SSA has on file.
What's New With Us?
I had a great meeting with our rep at State Street, one of the primary exchange-traded fund (ETF) providers we use. State Street is one of the largest ETF providers and the creator of the first-ever exchange-traded fund, its S&P 500 index fund "SPY" that it created back in 1993. If you want more info on the funds we use, why we use them and how we select them, let me know.
I will spend most of the weekend prepping for next week and working on our house. Fun times.
Have a great weekend,
Brian E Betz, CFP®
Principal
Investors Buy The Dip And Stocks Hit A New Record High
/In The News...
2,459.
That number is where the S&P 500 index finished this past week. It also marks a new, all-time high for the U.S. stock market.
We are conditioned to believe that what goes up must go down, and visa-versa. That logic is backward when it comes to the market. The phrase "the trend is your friend" is more applicable. If an investment is consistently rising in value, run with it. If it is falling, it may be time to sell.
The key word there is "consistent". Trends require consistency. Right now the S&P 500 -- which we believe is the best barometer of the total U.S. market -- possesses a rising trend dating back to nearly one year ago. Investors have been quick to buy stocks when short-term losses occur (I discuss in more detail below). This is a positive development.
How long will this bull market last? Hard to say. I have been bullish since July 2016 and will continue to be until our technical analysis says otherwise. But I do acknowledge that we are entering the most volatile two months of the year (Aug/Sept).
In The Market...
The S&P 500 gained +1.4% this past week. Let's look under the hood...
(price data via Yahoo Finance)
Stocks: Every sector was positive last week, except for Financials. It is funny because coming into this week I felt Financials were arguably the strongest-looking sector out there. I still like Financials and am still considering it as an allocation for most client accounts.
Technology rebounded well, up +3.2% and leading all sectors. This was a very encouraging week considering that the gains were evenly distributed across most of the nine sectors that advanced. Said differently, I would be more concerned if one or two sectors were up big while many others were flat or negative. We like to see the entire market rising as a whole. No surprise the S&P hit a record high as a result.
One of our current holdings is a Real Estate fund (VNQ), which we purchased a couple months ago. My hope/expectation was that it would obviously rally from the time we bought it. Instead the fund has floated around between the pretty well defined $80-85 price range. Take a look at the daily chart of VNQ...
(chart created via stockcharts.com)
If we expand the above chart to show a longer-term weekly view the outlook still suggests that rally will occur. But I'd be lying if I said I didn't think it would happen by now. My goal is for this latest week (up +1.3%) to propel it to finally surpass $85 and eventually look to sell around $88. Just a little insight to what I am seeing and thinking about a fund currently owned by many client accounts.
Bonds: Somewhat of a bounce-back week for bonds, following consecutive losing weeks for Treasuries. High-yield bonds gained almost +1.0%, which is perhaps the most encouraging news of all. I often look to high-yields as a sign of how stocks may behave in the future. The fact high-yields gained in unison with stocks is bullish.
In Our Opinion...
Sell the Rally vs. Buy the Dip... What's the difference?
The distinction between these two concepts is important. Earlier I mentioned that investors have been ready to buy any dips that the market has taken in recent months. This was the case this past week, as well as back in May and April before that. In each instance, the S&P 500 fell -2% or so and investors quickly jumped in to buy stocks, helping the market not only rebound, but surge higher.
This type of dip-buying is a hallmark of bull market rallies. It is part of the reason we do not fight trends, we embrace them. The opposite would be the mentality of selling-the-rally, which occurs when the market is in bad shape. In those instances, following a big drop the market eventually rallies. But instead of more investors jumping in to keep the rally going, investors instead use those rallies as an opportunity to sell and avoid potential, future losses. It is a matter of playing defense, whereas buying-the-dip is more offensive.
A great example of this is the frustrating period between 2015 and early 2016. Investors were constantly selling into any rallies, which made for some volatile times. Take a look...
(chart created via stockcharts.com)
This was a time when words like "bear market" and "recession" were popular. To be fair, back then I was on the fence regarding whether the market was going to fall into a bear market. Luckily it never did, but still, this period is a great example of how different times were just two years ago.
In Our Portfolios...
(Note: Each client's account is uniquely managed, based on account size and risk tolerance. Your account will only own some, not all, of the investments bought and sold over time.)
Q&A/Financial Planning...
Lease, lease, lease...
I wrote about this a while back but want to stress it again following our personal decision to lease, rather than buy, a new car this past week.
We leased a Toyota Highlander (three years, $2,000 down). The reason I prefer leasing is because it reduces your liability. A car is a liability, not an asset. The second you drive it off the lot it loses value, which is substantial in the first few years you own a new car. A three-year lease balance pales in comparison to the liability of taking a loan to finance a purchase (assuming you put minimal money down on the purchase). So long as you negotiate reasonable lease terms, the financing cost of owning a lease should be competitive to that of a loan rate. This means you are getting comparable financing without the liability of owning the car outright. Oh, and you still have the option to own it if you want when the lease term ends. It is very unlikely that you will ever make money on a car should you sell, which is why leasing makes more sense.
There are only 2 instances when I would recommend buying over leasing:
- You plan to own the car for a decade or more and extend its useful life well beyond full depreciation, AND, you plan to pay it off quickly (within the loan's term, or faster).
- You know for a fact that you will exceed the mileage limitations of a lease. Leases typically restrict you from driving the car more than 12,000 or 15,000 miles per-year. If you do, you are charged for each additional mile.
If you are in the market to buy or lease a car, feel free to ask me questions. I am sharp right now when it comes to car research and handling the negotiation process. Let me know, I am happy to help!
What's New With Us?
We are hiring!
I am looking to hire an Executive Assistant on a part-time basis, with the potential of transitioning to a full-time role. The new hire will help with day-to-day administrative functions as well as oversee our industry compliance protocol as the firm's Chief Compliance Officer. Among the skills required for consideration are a proficiency using Microsoft Office applications (namely Excel), an ability to grasp and implement new technologies for the firm and a strong attention to detail. This hire will work side-by-side with me, with the potential of working remotely while doing so.
If you know someone who may be interested, please contact me directly.
Have a great weekend!
Brian E Betz, CFP®
Principal