At WWM Financial’s Q1 Brunch at The Canyons in Carlsbad, Ca.
In case you were not able to attend Brunch this is a recording of Susan Taylor of Scripps Health discussing Gadgets, Gizmos and Good Health. Click on the image directly above to listen to the recording.
Listen to Susan Taylor of Scripps Health talk about all the technological advances that they’re testing in clinical trials or have already been approved by the FDA to improve your health. A gadget can be sparkly and monitor the number of steps you take each day. It may look like it’s doing a lot of things, but we Scripps won’t use it unless they see results that confirm these gadgets and gizmos actually improve your health. Susan discusses a multitude of devices that are being used for diabetes, cancer, heart disease and sleep. Some of this technology is implanted in the body. The patient never feels it, but it allows doctors to monitor patients no matter where they are anywhere in the world. The intent of this of technology is to promote better health, and help people live longer, healthier and more productive lives, at a lower cost. Some of this technology is in fact, life-saving.
Now for the understatement of the day…volatility has returned to the stock market.
Why has the stock market gone down with such force in the last week? I think there are a few reasons.
Profit taking. Stocks had run up extremely quickly over the last year or so, especially in January when the indices were up by around 8%. So it is normal for profit taking to occur.
Rising interest rates. Some investors have been spooked by the rise in interest rates. The 10-year government bond has risen to around 2.9%. They also believe the Federal Reserve is going to raise rates 3 or 4 times this year. When interest rate on bonds get high enough, they are competition for money that is now in the stock market. So the people who worry about this decided to sell some of their stocks.
Forced Selling. Perhaps the main reason for the stock market dive has been caused by hedge funds and others who invested in something called the VelocityShares Daily Inverse VIX Short Term Exchange Traded Note (and other securities like it). It is a security that bets on the volatility of the stock market. This is a highly leveraged security that is great when there is no volatility in the market.
Unfortunately, the spike in volatility in the market has caused some of these Exchange Traded Notes (ETNs) to nosedive by as much as 80%. Because they are leveraged, the hedge funds and other investors were losing a fortune and had to cover their margin calls. How do they raise money to cover the margin? They sell stocks that they own. This is what’s known as forced selling and it is happening in spades.
Are We in A Bear Market?
Does this indicate the start of a bear market? I don’t think so because the earnings that companies just reported were pretty good. Nothing has changed with the economy in the last week, just the price of stocks.
We might be in for a few more days of this until the forced selling abates. I do not believe this is the time to do any wholesale selling because the economy is still good. The tax cuts haven’t even started to kick in yet.
The advice from us is to sit tight, stay calm and if you have the cash be ready to gobble up some good stocks that continue to be forced lower.
As always, we are here for you, so if you have any questions, do not be afraid to contact us.
You can reach us at 760-692-5190 or Steve@WWMFinancial.com
The markets have returned to volatility lately. Every time the market looks like it’s headed down, we see people on TV start predicting that this is the start of a down market.
So here is how we see things right now.
First, the stock market has not had a big correction for a long time, so we all know that at some point it will correct. There are a lot of global events going on that are causing angst in the markets. Russia and Ukraine is probably the greatest of these issues, but certainly not the only issue. Israel and Hamas, Isis, Iran, Italy sinking into a recession and more are all adding to investors’ fears.
On the other hand, earnings reports have been generally pretty good. On Monday morning, August 5th, Bob Pisani of CNBC reported that of the 76% of the S&P 500 companies that have reported so far for the quarter, on average, earnings are up by about 9.7% and revenues up about 5%. Those are actually fairly decent numbers.
The bears (those who believe the market is going to go down) believe the companies’ earnings are going to slow down. The bulls (those who believe the market is going to go up) say the companies’ earnings are strong, the interest rates are still low, so stocks are the place to be.
The bears say that rising interest rates will be a competitor to dividend paying stocks so stocks will get sold off. The bulls say that if interest rates go up, then bonds will go down in price, so you want to remain in stocks.
So the pessimists and the optimists are both trying to figure out where the market should be, hence the volatility. For the year, the stock market has been hovering around the flat line, with some months good and some months bad. So there has not been a real direction one way or the other.
We have heard several prognosticators say it looks like we are heading for a growth rate of about 3% to 4% in the U.S. for the year. If that growth rate is accurate, that is normally not the underpinning of a major bear market. But that does not mean there can’t be corrections along the way.
As we have said many times, no one knows with certainty where the market is going to go. We certainly don’t know if the bulls or the bears are going to be right in the short term. So we say that now is a good time to look at your portfolio, make sure you are in the proper asset allocation, and then be sure it is something that will not cause you to panic if the market goes down by 15 or 20% (which is a normal market correction). As most of our clients have heard us say, it is panicking out of the market at the bottom that causes the most damage to investors’ returns.
If you are not sure of where you are or just want to review your account, please call us. We are always here for you.
This quarter we are focusing on behavioral investing. Each quarter as we focus on a different topic, we will provide you information and opportunities for further discussions.Please check out this ShaveMagazine.com article.
