DavidinNaples
12 is way better than 3..!!
- Joined
- Apr 1, 2013
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I wrote this for clients today and thought some on the BY might be interested. 
In numerical terms, the Dow went down 666 points (2.54%) and the S&P 500 fell 60 points (2.12%). The Dow finished the trading day at 25,521 or 1,096 points below the all-time high set very recently. For the week, the Dow went down slightly over 4%. The S&P 500, which is a bigger basket of stocks than the 30 in the Dow, fell 111 points for the week or 3.85%. Almost every stock, in every industry, went down anywhere from 1%-5%. It was program selling, panic selling and “run for the exits” selling all lumped into one miserable trading day. So why so much selling, so suddenly?
1. Because stock markets normally sell off and this one hadn’t in a long time. Despite recent experience, stock prices usually don’t go straight up, and up, and up... Some news event or bad earnings report will normally take down a stock that had been performing well. Investors will sell on the bad news, book their profit and buy something that they think will move up in price, better than the stock they sold. Sometimes this happens in an industry, like energy or health care, and sometimes the whole market sells off. This bull market had been 448 days without a 3% correction. That was a record. Sooner or later, a bunch of investors will decide to take some profit and sell some stock. Friday was that day.
2. Selling results in more selling. Friday started out as a 150 point loss on the Dow. As stocks came down in price, stop losses and sell triggers were hit. More sales resulted. The 150 point loss turned into 300 points and more selling resulted. By the end of the day, the Dow was down 666 points and only the closing bell at 4 pm stopped the carnage.
3. Investors are scared the Fed will raise interest rates 4 times this year. Bonds are normally a safer investment alternative to stocks. They pay interest and when they mature, you get your money back. Stocks don’t guarantee anything. You might double your money or lose it all. For the last half dozen years, the Fed has kept interest near zero. That is good for consumers buying cars or homes, but lousy for investors looking for safe bonds in which to park their hard earned savings. The Fed has started moving short-term rates higher and the fear is they will raise rates 4 times this year. The 10 year U.S. Treasury hit a four year high of 2.85% on Friday morning. Investors are scared two things will happen if the Fed raises rates too fast. One, more people will sell stocks and put their money in safer bonds. Two, higher rates will kill economic growth because borrowing to buy anything will be more expensive. That will impact corporate earnings, and therefore stock prices.
4. Several big-name stocks had “bad” earnings reports. In their Thursday evening earnings report, Apple announced they sold 77 million iPhones. Sounds good, right? Well, Wall Street expected 80 million and better numbers from the newest iPhone X. Apple’s stock price fell 4.34% on Friday and finished the week down 11%. Google had the same kind of earnings report. Good numbers weren’t good enough and the stock price dropped 5.28%. Some investors looked at APPL and GOOGL falling out of bed and lost hope for a buy the dip rally Friday afternoon. The only other option was selling.
The drop in the Dow was the 9th largest point decline in history. But, it was only the 697th largest percentage decline. In other words, a 3% correction when the market is at 26,000 looks a lot worse than a 3% correction at 15,000. Since the election in November, stock prices have rallied relentlessly. Apple, despite the 11% fall last week, is still up 48% in the last year and a half. Home Depot is up 61% since the election, despite a 3% drop Friday. Days like Friday are painful, but normal. There may be more selling on Monday or a Buy the Dip Rally later in the day or week. No one knows for sure until the market opens and the buying/selling begins.
One thing is certain. In the history of the stock market, every correction, whether 3% or 20%, has been followed by a rally to a new all-time record. It is a matter of patience and discipline. Owning quality equities has been very profitable in the long run. The economy is in better shape than it has been in a while and the Fed hasn’t raised rates 4 times yet. It may be best to relax and take a hint from the next wave of earnings coming next week. Over 100 S&P 500 companies will report, including Bristol-Myers, Disney, Allergan, CVS, General Motors, Nvidia, Toyota, Michael Kors, Chipotle and Tesla. Good news may bring back the buyers.
In numerical terms, the Dow went down 666 points (2.54%) and the S&P 500 fell 60 points (2.12%). The Dow finished the trading day at 25,521 or 1,096 points below the all-time high set very recently. For the week, the Dow went down slightly over 4%. The S&P 500, which is a bigger basket of stocks than the 30 in the Dow, fell 111 points for the week or 3.85%. Almost every stock, in every industry, went down anywhere from 1%-5%. It was program selling, panic selling and “run for the exits” selling all lumped into one miserable trading day. So why so much selling, so suddenly?
1. Because stock markets normally sell off and this one hadn’t in a long time. Despite recent experience, stock prices usually don’t go straight up, and up, and up... Some news event or bad earnings report will normally take down a stock that had been performing well. Investors will sell on the bad news, book their profit and buy something that they think will move up in price, better than the stock they sold. Sometimes this happens in an industry, like energy or health care, and sometimes the whole market sells off. This bull market had been 448 days without a 3% correction. That was a record. Sooner or later, a bunch of investors will decide to take some profit and sell some stock. Friday was that day.
2. Selling results in more selling. Friday started out as a 150 point loss on the Dow. As stocks came down in price, stop losses and sell triggers were hit. More sales resulted. The 150 point loss turned into 300 points and more selling resulted. By the end of the day, the Dow was down 666 points and only the closing bell at 4 pm stopped the carnage.
3. Investors are scared the Fed will raise interest rates 4 times this year. Bonds are normally a safer investment alternative to stocks. They pay interest and when they mature, you get your money back. Stocks don’t guarantee anything. You might double your money or lose it all. For the last half dozen years, the Fed has kept interest near zero. That is good for consumers buying cars or homes, but lousy for investors looking for safe bonds in which to park their hard earned savings. The Fed has started moving short-term rates higher and the fear is they will raise rates 4 times this year. The 10 year U.S. Treasury hit a four year high of 2.85% on Friday morning. Investors are scared two things will happen if the Fed raises rates too fast. One, more people will sell stocks and put their money in safer bonds. Two, higher rates will kill economic growth because borrowing to buy anything will be more expensive. That will impact corporate earnings, and therefore stock prices.
4. Several big-name stocks had “bad” earnings reports. In their Thursday evening earnings report, Apple announced they sold 77 million iPhones. Sounds good, right? Well, Wall Street expected 80 million and better numbers from the newest iPhone X. Apple’s stock price fell 4.34% on Friday and finished the week down 11%. Google had the same kind of earnings report. Good numbers weren’t good enough and the stock price dropped 5.28%. Some investors looked at APPL and GOOGL falling out of bed and lost hope for a buy the dip rally Friday afternoon. The only other option was selling.
The drop in the Dow was the 9th largest point decline in history. But, it was only the 697th largest percentage decline. In other words, a 3% correction when the market is at 26,000 looks a lot worse than a 3% correction at 15,000. Since the election in November, stock prices have rallied relentlessly. Apple, despite the 11% fall last week, is still up 48% in the last year and a half. Home Depot is up 61% since the election, despite a 3% drop Friday. Days like Friday are painful, but normal. There may be more selling on Monday or a Buy the Dip Rally later in the day or week. No one knows for sure until the market opens and the buying/selling begins.
One thing is certain. In the history of the stock market, every correction, whether 3% or 20%, has been followed by a rally to a new all-time record. It is a matter of patience and discipline. Owning quality equities has been very profitable in the long run. The economy is in better shape than it has been in a while and the Fed hasn’t raised rates 4 times yet. It may be best to relax and take a hint from the next wave of earnings coming next week. Over 100 S&P 500 companies will report, including Bristol-Myers, Disney, Allergan, CVS, General Motors, Nvidia, Toyota, Michael Kors, Chipotle and Tesla. Good news may bring back the buyers.
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(Was also the low for the S&P 500 in March 2009)
