Today the DOW and the S&P 500 closed down about 1.2% and 1%, respectively. Meanwhile the VIX (the volatility, or the “fear index”), closed up nearly 10%. Clearly many investors are currently feeling a sense of concern and a lack of clarity. A quick scan of the headlines on Google Finance from earlier this morning reveal arguably negative headlines ranging from Turkish & South African currencies to Fiat/Chrysler’s intention to shutter a Michigan factory in 30 days, stagnant home sales in Massachusetts, sliding stock prices to an accountant being indicted for insider trading. This is what the public sees, and it’s all rather grim.
Our view is that, yes, so far in 2014 the market has been volatile and we’ve had some down days, but this was expected. At the moment, the S&P is sitting at 1,774. One year ago, on January 29, 2013, the S&P 500 closed at 1,507. In 52 weeks, the S&P marched upward, with a number of slips, on to a high of 1,848, first on 12/31/13 and then slightly higher on January 15th. And, of course, the 5 year view is even more dramatic. Anyone remember what the S&P was on 1/29/2009? 845.14. Did it grow 110% during a five year period painlessly? Of course not: growth doesn’t happen in a straight line.
And while we’re at it, Chrysler just announced a profit of $1.8 billion in 2013 (up 9% from last year) and they are giving profit-sharing bonuses to their employees. As for homes sales, Massachusetts may be stagnant, but by the end of 2013 national home sales were at levels not seen since 2006. And the labor market appears to be modestly improving. And the Fed is continuing its accommodative rate policy. And not all accountants are crooks. There’s encouraging news out there too.
So what are we looking at today? First, we’re looking at the Fed’s comments. Like many others, we’ve been curious for some time to see how well the Fed will go about unwinding its quantitative easing program. Today’s reduction is round two, and we are curious to see how the market responds in the coming days. The first reduction, in which monthly bond purchases were reduced from $85 billion to $75 billion, seemed to go relatively smoothly. More importantly, however, we’re looking at the Fed’s outlook on the economy and its rationale for its action plan. While we describe ourselves as interested in hearing the Fed’s comments, perhaps it’s fair to characterize the markets as jittery.
We’re not as concerned with current headlines about emerging markets and foreign currencies. Yes, such things have the potential to spread regionally or into larger economies, but at the moment we feel it’s more a matter of investors looking into the glass darkly. It’s not clear to them what they’re seeing, and as a result of the lack of clarity, there’s a pullback in emerging markets as investors seek the safety and clarity of US government securities.
The truth is many things affect what the market does. But what the market does day to day does not directly affect what we do, or what we advise our clients to do. From our perspective, investors are generally best served to have a prudent and disciplined plan, adjust it as necessary, and stick with it.
– Chad Campbell
*This information is from sources believed to be reliable, but we cannot guarantee its accuracy or completeness.