April 14, 2014

So, is the market crashing?

I always know when it’s time to write a blog on the markets when my husband asks me at night, “So, is the market crashing?”  To be fair, the change in the equity markets from 2013 to 2014 has been dramatic.  So what happened when the calendar changed from December 2013 to January 2014?  That is easy to explain. Baby New Year brought his friend Market Volatility home from the New Year’s party.  Volatility is the daily change in the price of an index, like the S&P 500.   On September 30, 2013 Bloomberg published an article titled, “Volatility Falls To Seven-Year Low as S&P 500 Rallies”.  The gain in the S&P 500 went on to be 9% from October 1 through December 31, 2013.  That is a market gain most people would be happy with for an entire year.

That is why 2014 has been so uncomfortable for so many clients.  But, if you think through some of the challenges that we began the year with, it isn’t hard to see why we’ve had a rough start to the year.

To start off 2014 we had another budget battle looming in Washington D.C.  Remember the summer of ’13 when the government shut down and there was talk of the U.S. defaulting on our debt?  Well, the accord that was finally found was to reevaluate the Debt Ceiling debate by February 7th 2014.  (more kick the can, I know!)

The Federal Reserve Chairman stepped down at the end of January, and Janet Yellen would take the helm.  How would markets react to the new Chairwoman’s communication style?The stock market indices had reach fresh all- time highs.

January of 2014 was a time for the market to reflect on the massive year of performance it had just enjoyed.

Clients were wondering…with the markets at new highs, and the S&P 500 has rallied an impressive 30 percent in 2013, is now the right time to add to my investments?  Well historically, according to J.P. Morgan, a year in which stocks rally more than 20 percent isn’t all that uncommon. In fact, 1 in every 3 calendar years since 1897 have seen equities rally by more than 20 percent.  In fact, 2013 wouldn’t even crack the top 20 of all-time greatest years for stocks.

As January moved into February, the weather became more bitter as well.  Both East and West Coasts saw their share of weather problems. From droughts to massive snow falls and bitter cold.  Work slowed and so did the employment and housing numbers in the U.S.  The budget battle was resolved quietly, I know hard to believe.  Chairwomen Yellen spoke to Congress for the first time, and markets start to recover their composure.  But something interesting was developing.  After two years of commodities falling, we started to see prices begin to reverse.  The dollar which had enjoyed some strength in 2013, also began to weaken.  Then, let’s not forget Russia’s uninvited company into Ukraine.  Is it any wonder that we’ve seen the market volatility creep back?

We started this year at 1845 on the S&P 500, we closed this week at 1815.  That is a negative 1.6% for the year so far.  That doesn’t seem so bad, but what is making it feel so bad?  I think it is the number of days that the market is moving up or down by at least 2%.  All that red just feels bad.  But the truth of the markets are, that since 1975, the market has experienced a 2% (or worse) weekly decline in a little over 13% of the weekly readings. This means that, on average, the S&P 500 experiences a weekly decline of 2% (or worse) roughly seven times per year.  So what has been or experience this year?  In 2014, year to date we have only had 2 weeks with a weekly decline of at least 2%.  The good news is we only have 38 more weeks to go!

Seriously though, many of the problems that we thought would be headwinds for the markets in 2014 are starting to diminish.  Now the question that remains is will the dollar continue to weaken, and if so how will that impact GDP growth.  Because growth expectations are what really run the markets, and right now, Mr. Market seem undecided.  So how can you handle your portfolio? Don’t let you emotions guide your investment decisions.  A general has a strategy for battle, and so should you.  Make sure to review your plan with your advisor, and if you don’t have someone you trust, may I humbly suggest you visit amjfinancial.com and make a plan!

Disclosure:  It is not possible to directly invest in an index. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested

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