Market Pulse: Is it time to panic?
October 22, 2014
The market is volatile with daily swings of 200 points or more. In the first 15 minutes on Wednesday of last week the Dow shed 370 points and the S&P more than 40.
Stocks fell further in the afternoon (down 460 points, S&P off 55 at the worst) and later recovered much ground only to sell off early the next day.
At its worst, the S&P was off 9.8 percent from its recently set all-time high. Equity investors were panicking, but they weren't alone.
There was panic in the Treasury market, too. Panic buying that is. The yield on the ten-year T-note fell to 1.86 percent before rising again.
The apparent trigger for the panic selling of stocks was the worsening outlook for global growth, one that is being re-enforced almost daily with soft economic data.
Plus there's sanctions on Russia, no growth in Europe and Japan, a recession in Brazil, default by Argentina, fighting in Ukraine, turmoil in the Mideast, Ebola, collapsing commodity prices, deflation risks, Hong Kong protests, etc.
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I'm well aware of what is wrong, but that doesn't mean it's a bear market. The stock market is all about future earnings and interest rates, and that alone explains the multi-year bull market; that also explains why it's not over.
Operating earnings will grow 6-8 percent next year and real GDP growth will be 3 percent, give or take. The Fed is focused on the effects of the dollar's rise, near-recession conditions in Europe and falling commodity prices.
Conclusion: whenever interest rates rise they won't rise fast and they won't go far. There may not be any increase at all next year.
That means the two key areas — earnings and interest rates — will be positives for stocks. Plus, the near-zero interest rate money market is no competition for stocks.
Bottom line: There may be more volatile days ahead and there may be yet another bout of profit-taking.
I've been through times like this before, many in fact. Were they unnerving? Sometimes. Unpleasant? Always. A reason to sell bail out of all stocks? No. Not in a bull market.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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