Is This Just a Correction or the Big Crash
- Why stocks are going down
- Investor strategy to build a bullet proof retirement plan
- Stock market positives and negatives
1. Why stocks are going down
In just a blink of an eye the stock market has given up all of its gains for the year. The scariest part is that the nature of this current pullback has been violent and severe, mercilessly hitting every sector. Nervous investors are asking themselves: Is this just a normal correction or the “Big One” that can derail our retirement dreams?
The one consequence with this pullback, that has yet to reach the main stream, is an increased risk of deflation, which is inevitable. This is the very thing I said would happen in Facing Goliath – How To Triumph in the Dangerous Market Ahead. It is only coming to the forefront now because oil has plummeted, good news to the consumer, but it signals deflation is coming on faster than anticipated.
The funny thing about corrections is that every time the market rises without a meaningful pullback for any length of time, investors say that we need a normal correction, that they want a correction, and that they intend to buy the dip….but when that correction comes, those investors get jolted and say, “Oh no, the market just dropped, there must be something wrong! Run for hills!” It has me shaking my head every time.
Of course, you know from reading this newsletter religiously every week that this is going exactly as I forecasted. I have been saying for weeks that we will be getting a “Pre-earnings Nap.” This is the period right before the earnings season where investors get nervous that earnings are just not going to be good enough.
In addition, we have an absence of corporate information being made public. This is a “black out period”, where right before earnings are released there is essentially radio silence from companies. In the absence of information, attention is turned to the newspaper headlines, and honestly when has the headlines ever made you want to invest? Lately, it might make you never leave the house!
So what you typically get is fear followed by a correction. It happens every quarter, except January. Knowing this, I said that I hoped for the long awaited 10% correction, which will lead to a strong 4th quarter for stocks. Of course, I am always conscious of the risks, and on the lookout that there is worse to come I am ready to take action to protect our clients; a “pray for peace but prepare for war” approach.
2. Investor Strategy
Even though I think the 4th quarter will be decent, this is no time to throw caution to the wind. If you are retired or close to it, the key is to be properly invested with a qualified retirement advisor. This will ensure that you are looking at the big picture and getting the returns you “need,” but with the least risk possible, so you don’t get crushed during the next crash or correction. As you well know, you simply cannot replace this money….so you need a plan…a written plan, for the good times and the bad.
3. Stock market positives and negatives
- Earnings will likely come in better than expected
- Stocks are not expensive, selling at only 14 times 2015 earnings. That’s the middle of the historic range.
- Oil has dropped $30 a barrel, which is a 50 plunge per gallon. That’s a nice tax cut. Keep in mind that we are now the #1 producer. Yay for the good guys.
- A much improved consumer confidence will mean a strong Christmas selling season.
- The November elections are a big unknown, but there is little doubt that there will be gridlock. The market likes gridlock.
- Corporate mergers and acquisitions are ongoing. This has been the biggest year for M&A activity ever. This typically happens because companies see each other as cheap. If they can’t buy a competitor, then they buy their own stock. Look at
- Apple. It’s gobbling up $400 billion a year in its own stock.
The world economy may be weak, but the U.S. is not. Broad based capital spending is accelerating, and probably why the IMF boosted its growth forecast for America next year to 3.8%.
- Money is still cheap and available.
- The bull market is old. No matter how good the weather is, even trees don’t grow to the sky.
- The Nasdaq, and particularly the Russell 2000, have been getting crushed. Stocks do not top all at once at peaks. Different sectors roll over at different times until very few are making new highs at the top.
- Optimism is increasing. Markets do not crash when everyone expects them to.
They do, however, when no one does. The AAII survey currently has investors 39% bullish, 30.5% neutral and 30.5% bearish. Not bad, but bullishness is on the rise. Markets are screaming buys when the bulls drop below 20% and in dangerous territory when they get above 50%.
We are clearly late in the game and investing is going to get more difficult …… and that’s where we can help. To learn more about The Springer Investment Approach, which is our powerful proprietary Investment Management Strategy designed to manage risk and deliver returns in any market, or to get a free second opinion on your portfolio, simply reply to this email, or give me a call at 916-925-8900 for a no-cost no-obligation today!