EQM Capital Blog

Weekly Market Recap for 10/17/14 – This Week’s Wild Ride on Wall Street!

Posted by on Oct 18, 2014 in EQM Capital Blog

dips

Last week was a bumpy ride!

By week end the major benchmarks had ended the week mixed thanks to a powerful Friday rally.  On Wednesday morning, the S&P 500 Index had sunk to levels last seen early in the summer and was dangerously approaching the 10% decline threshold typically considered market correction territory. Meanwhile, the S&P MidCap 400 Index did move into correction territory and fell below its level at the start of the year, joining the small-cap Russell 2000 Index. But small and mid cap names rallied sharply, reversing their  downward spiral and ending the week with gains. The tech-laden Nasdaq Index and the large-cap benchmarks recorded still posted losses for the week.

Ebola fears weighed on sentiment

Although its impact on the market is difficult to quantify, the alarming news about the spread of Ebola in the US was one factor weighing on sentiment when trading began on Monday. These fears deepened Wednesday, after reports that another nurse had been infected, and were likely a factor in driving stocks to their lows for the week. The Ebola concerns had their most direct impact on airline stocks which sold off sharply in expectation of reduced air travel.  But lower oil prices might ultimately be an offset for traffic declines.

Slowing global growth and deflation also a drag

Factors directly related to the economy and markets also drove much of the selling this week.  On Wednesday, an unexpected decline in consumer spending in September spurred a selloff, as did signals of falling inflation in many countries. Worries about the possibility of a recession in Europe and slower growth in China continued to drive a sharp decline in oil prices to $80 per barrel.  Oil prices have now declined nearly one-quarter since this summer. An unexpectedly sharp rise in U.S. oil inventories also fed fears of a glut in global supply.

Tapering pause to settle the markets?

Market sentiment turned sharply on Thursday morning when St. Louis Fed President James Bullard suggested a pause in the Fed’s taper of its monthly asset purchases might be warranted. Traders took the remark as a statement of implicit Fed support for equity markets, should they continue to fall.

U.S. economy chugs along

Favorable economic data later in the week continues to indicate that the U.S. economy is resisting the global slowdown. Weekly jobless claims fell and payroll growth was healthy which should help support renewed gains in consumer spending.  The drop in oil prices may also spur spending as well.

U.S. Stocks1
Index Friday’s Close Week’s Change % Change
Year-to-Date
DJIA 16380.41 -163.69 -1.18%
S&P 500 1886.76 -19.37 2.08%
NASDAQ Composite 4258.44 -17.80 1.96%
S&P MidCap 400 1321.86 17.34 -1.54%
Russell 2000 1083.94 30.51 -6.85%
This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.1Source of data Reuters, obtained through Yahoo! Finance Closing data as of 4 p.m. ET.

The opinions expressed above should not be construed as investment advice. This article is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Readers are encouraged to seek individual advice from their personal, financial, legal and other advisers before making any investment or financial decisions or purchasing any financial, securities or investment related service or product. Information provided, whether charts or any other statements regarding market, real estate or other financial information, is obtained from sources, which we and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this post should be interpreted to state or imply that past results are an indication of future performance.
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3Q 2014 Market Recap and Client Letter

Posted by on Oct 11, 2014 in EQM Capital Blog

Dear Valued Client,

The third quarter of 2014 had its shares of ups and downs. Much of the market volatility was geo-politically driven this quarter with Russia, Scotland, and ISIS taking turns spooking the capital markets.

Here in the U.S. there were mixed economic signals leading investors to wonder when Janet Yellen’s led Federal Reserve will sound the “all clear” signal for the domestic economy and start to increase interest rates. The employment picture looks vastly improved with the unemployment rate dipping to 5.9%. But wage growth is still not impressive, contributing to weakness in areas like housing and discretionary spending. As a result, the Fed intends to wait a “considerable time” before it raises interest rates.

The S&P 500 Index climbed 0.6% in the quarter, setting new highs along the way. However, the quarter did not exactly end on a positive note, with the S&P 500 declining 1.6% in September, and off 4.6% from the record high it set on September 19th.

One reason for the market decline was the strengthening U.S. dollar relative to other global currencies. Investors are concerned that U.S. companies and their corporate earnings growth will be negatively impacted by a stronger dollar overseas.

strongerdollar

However, one residual effect of a stronger dollar is the driving down of dollar-denominated oil prices. This is a positive for industries and sectors where oil is a major input in the cost of production. And to the extent that lower oil prices translate into lower prices at the gas pump, this is ultimately a good thing for the consumer.

oilpricesdrop

So the question going into the end of the year is will economic strength at home offset weakness abroad?   And as we approach earnings season, are current earnings expectations too hot, too cold, or just right?

For your reference, here is how fund performance looked in the third quarter, but as usual I will be reaching out to each of you individually to go over your results.scoreboard

I recommend clients remain well diversified in order to reduce their overall risk and volatility and maintain a long-term perspective.

If you have any questions or concerns about the market or your individual financial situation and investments please reach out!

 

Regards,

 

Jane Edmondson

 

Office 858-935-6041

Direct 858-461-8183

Mobile 619-838-8533

Fax 858-461-6576

Email jane.edmondson@eqmcapital.com

Website http://www.eqmcapital.com

The opinions expressed above should not be construed as investment advice. This letter is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Readers are encouraged to seek individual advice from their personal, financial, legal and other advisers before making any investment or financial decisions or purchasing any financial, securities or investment related service or product. Information provided, whether charts or any other statements regarding market, real estate or other financial information, is obtained from sources, which we and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this letter should be interpreted to state or imply that past results are an indication of future performance.

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Schwab Market Perspective: Clear Sailing…or Choppy Seas? 9/26/14

Posted by on Sep 26, 2014 in EQM Capital Blog

Key Points

  • Upward momentum has paused and a pullback is overdue, but the longer-term trend is still likely higher.
  • The Federal Reserve remains accommodative, but with QE ending and the first rate hike in the market’s sights, volatility is likely to rise.
  • Outside the United States, Europe is flirting with another recession and deflation, Japan is trying to pull itself out if its long-standing malaise, and Chinese growth is slowing.  Emerging markets look attractive.

Click here for the rest of the article:

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Read my latest articles from The Street and Seeking Alpha

Posted by on Jul 11, 2014 in EQM Capital Blog

For my latest articles on The Street and Seeking Alpha, click below:

TheStreet

SALogo

 

 

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Is Your Portfolio Like a Storage Unit?

Posted by on Jun 18, 2014 in EQM Capital Blog

Are You a Hoarder?

I am not quite ready to be cast on the TV show “Hoarders“, but I do have a hard time letting go of my old possessions.  Each item seems to have a fond memory associated with it or must be retained for some unknown, but important future purpose.  Which is how I ended up with a storage unit, paying a monthly fee to keep all these past and future gems.  This segues into the topic of investment portfolios.

How many folks out there have a portfolio that resembles a storage unit?

Take a look at your investment portfolio.  Are there some stocks or mutual funds in there that you have fallen in love with and just cannot bring yourself to part with?  Or what about those names you continue to hold because some day they are going to work again and be worth something?  In behavioral finance terms, these actions are akin to “anchoring” on the past and being “overconfident” about the future.

It is easy for even professional money managers to fall into these patterns.  I was a portfolio manager for more than 10 years and would see it all the time among my co-workers.  There were some names managers could not part with, evidence to the contrary such as missed earnings, deteriorating fundamentals, and/or secular change.

Sometimes those managers were fixated on the stock’s past glory.  “I have made a lot of money in that stock over the years!”  Other times, they were hoping to be vindicated.  “That stock is going to get bought out by someone!”

Unfortunately, these behavioral biases result in sub-par performance and inefficient portfolios which you end up paying a monthly storage fee for month after month.

Just Go Passive?

So what’s the answer?  As an investor, do you just throw in the towel on skill and index everything?

That investment method works well in an up market, but guarantees you most of the downside in a down market unless you are magically diversified into exactly the right asset classes, countries, and sectors.

Passive management offers the illusion of objectivity, but  there are still asset allocation decision and timing calls to be made which are subject to the same behavioral biases.  So passive management is not a panacea either.

Stay Active?

Mind you, I am probably subject to my own biases as a so-called “active manager”, but I still think that regardless of what investment vehicles you use, investors need to stay diligent, flexible, open-minded, and objective.

One way to achieve this end is to have an objective investment process or model in place that helps you time what to buy and when to sell and how to structure your portfolio efficiently and tactically.  In addition, portfolios need to be rebalanced on a regular basis or they really will start to look like a storage unit due to neglect.

Take Inventory!

So take a look at your investment portfolio.  Does it resemble a storage unit? Portfolios are not supposed to be a collection of items, but a structured, tactical selection of investments designed to meet specific goals and objectives.

It may be time to take inventory of your portfolio, reduce the clutter, and get organized!

 

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Sell in May? No Way!

Posted by on Jun 2, 2014 in EQM Capital Blog

The market refrain “sell in May and go away” failed to apply again this year as the stock market continues to teeter at record highs. The notion that investors should take their profits ahead of warmer weather and return, presumably when markets are lower, in the fall has not worked the last couple of years.

The S&P 500 gained 2% in the month of May and now sits near an all-time high position, up 4.5% for the year. The bond market has also been rallying this month as well, with bond yields on the 10-Year Treasury Index hovering at 2.5%. Investors continue to be concerned about the pace of economic growth which had been expected to be more robust. Investors caution and growing expectations that Fed policy will continue to be accommodative has helped drive demand for Treasury bonds and kept interest rates low.

The other factor driving bond market gains is that many investors were caught on the wrong side of the bond trade, expecting rates to rise. They are now forced to buy into the market to cover these positions. The end result is that both the equity and bond markets climbed in May on very little economic news.

Investors also appear to be favoring safety and low valuation over risk and momentum these days. The S&P 400 MidCap Index advanced 1.7% in May, now up 2.9% for the year. Small Cap stocks by contrast continue to be down for the year, down 2.8%. So in terms of opportunities in the US market, large and mid cap names continue to be favored.

indexcomp

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