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INCLINE VILLAGE, Nev. — Stock investors have had a rough summer with the Dow down around 10 percent from its July high, though at one point it was much worse than that. So far in August, on eight days the Dow rose or fell more than 300 points and on most of the others it rose or fell more than 100 points. In fact, on only 6 of 21 days did the Dow move less than 100 points. Such volatility is unprecedented. It shows no signs of abating.
Last summer was a rough one, too. Eerily so. Stocks quickly fell 16 percent ahead of what many felt was a looming recession. Compare that to this year's 18 percent drop. Last year the Federal Reserve came to the rescue with QE2 (bond purchases) and stocks rallied. I doubt that the Fed will fund QE3 anytime soon, but they will find some other way to help the economy and the markets.
What happens next? Last year the market leaped 20 percent from the August low through the end of the year. Can there be a repeat performance? I wouldn't rule it out. That's because stocks are cheap as investors are factoring in worst-case scenarios, including another recession.
The odds of another recession are increasing, but I consider it unlikely. Jobs are being created, the money supply is growing, retail sales are rising, profits are at a record high, balance sheets are healthier than they've been in many years and loaded with cash, and personal income is rising. Earlier this week it was reported that consumer spending had its biggest jump in five months. It's a slow-growth economy, but it is growing.
Like last year, there are uncommon values in stocks and there are also uncommon risks. While we seldom hear about the former, which become evident over time, we are reminded of the short-term nature of the risks every day and will be until some of them fade. Soon, let's hope.
Those who focus on long-term goals take advantage of panic selling, and history is on their side. Perhaps that's why CEO's are buying more than at any time since 2008. What does that tell you? Right.
— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the position mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
Last summer was a rough one, too. Eerily so. Stocks quickly fell 16 percent ahead of what many felt was a looming recession. Compare that to this year's 18 percent drop. Last year the Federal Reserve came to the rescue with QE2 (bond purchases) and stocks rallied. I doubt that the Fed will fund QE3 anytime soon, but they will find some other way to help the economy and the markets.
What happens next? Last year the market leaped 20 percent from the August low through the end of the year. Can there be a repeat performance? I wouldn't rule it out. That's because stocks are cheap as investors are factoring in worst-case scenarios, including another recession.
The odds of another recession are increasing, but I consider it unlikely. Jobs are being created, the money supply is growing, retail sales are rising, profits are at a record high, balance sheets are healthier than they've been in many years and loaded with cash, and personal income is rising. Earlier this week it was reported that consumer spending had its biggest jump in five months. It's a slow-growth economy, but it is growing.
Like last year, there are uncommon values in stocks and there are also uncommon risks. While we seldom hear about the former, which become evident over time, we are reminded of the short-term nature of the risks every day and will be until some of them fade. Soon, let's hope.
Those who focus on long-term goals take advantage of panic selling, and history is on their side. Perhaps that's why CEO's are buying more than at any time since 2008. What does that tell you? Right.
— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the position mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
