It’s Nap Time for the Market
It’s the end of the quarter, which means it’s nap time once again for the stock market. This is the 2 week, blackout period before earnings are released, meaning radio silence from companies and the halt of any stock buyback programs. This lasts until they announce their earnings, which begins with Alcoa on April 8th.
Companies taking a break on buying back their own stock is a big deal and not something to be discounted. Corporate buyback’s have accounted for a large part of the market’s movement for the last several years; they are credited for a quarter to one-third of all the net inflows into stocks since the 2008 crises. Remove that from the equation, and the best scenario is likely sideways movement. This has happened every quarter for the last 25 years or so, and it’s what I have deemed the “Pre-earnings nap period”.
There is one more obstacle to this particular quarter. It’s the sound of 175 million tax payers writing checks to the US Internal Revenue Service. Of the $6 trillion in revenue Uncle Sam will rake in in 2015, 37%, or $2.2 trillion, will come from individual income taxes. So for the next few weeks, there’s no loose change available to put into the stock market.
Here is another fly in the ointment. The Office of Financial Research, the agency tasked with promoting financial stability and keeping an eye on markets, released a paper last week stating that “stocks are overpriced, overleveraged, and headed for trouble, and that excessive leverage will exacerbate the next market correction.” I find this outlook very interesting. In fact, I love when the supposed “experts” are negative or bearish, because markets do not crash when everyone is expecting them too. I find this so intriguing that I am making this report the subject of my radio shows this weekend, Smart Money with Keith Springer, so tune in for the fun.
No matter what your temperament, we all have to be careful with this market. There is certainly a changing investment climate with the stronger dollar having an impact. Large multi-national corporations with a lot of global sales, which most do, will have a lot of headwind. Even if their sales increase, much of their gains may be washed away when converted back into greenbacks. Smaller-caps should shine in this environment.
I do think earnings will be better than expected and stocks go higher, but so will the risks along with them. Just look at the market so far this year. Lots of grinding and churning with massive moves in both directions, yielding what? Absolutely nothing, except for headaches and heart attacks. As of this morning, the market is down for the year. Which is all the more reason to not reach for risk and “Invest for need, not for greed™”.
The key as you get older is to manage risk properly because it becomes harder if not impossible to replace this money…unless you don’t mind losing money and plan on working forever. If you are retired or close to it, “how much can I make” is replaced by “how much can I afford to lose” or “how much do I want to lose”. The key is to get the best returns possible based on what you “need,” but with the least risk possible. That way you don’t get hurt too badly, or at all, when the market turns down again.
…… 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 us a call for a free consultation today.
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