Greetings
Friday, April 22, the Dow lost almost 1000 points. We had not seen that bad of a day since 2020 when CoVid hit. It was ugly for sure but these fast rallies and scary falls happen when the world is in turmoil, both economically (inflation) and politically (Ukraine). It is to be expected. Storms tear things up. Yes they do.
Keep in mind, after that similar day in 2020, the Dow screamed back even higher soon thereafter, so hope springs eternal.
Investors might take heart knowing that bad sell-offs can be followed by equally eye-popping rallies. Not to say the pain is over, as there usually are reasons for massive routs, and this crash is no exception, and the reasons still may exist.
The NASDAQ actually started its slow motion crash late in 2021. In my opinion, the sector represented by the NASDAQ simply got too frothy, and it finally reversed as investors took profits.
That was followed by investors finally taking notice, at the start of 2022, of the inflationary forces that had been accelerating for about a year. Consumers likely knew prices were jumping more than usual. You would have had to live on the moon not to notice. But in the market, fear tends to surface all at once, and can come to a head in a horrific crash on any particular but obscure day that no one can predict.
Detailed in numerous Money Matters shows and articles, and shouted from the roof tops on many news media outlets, inflation had been getting worse for months, and it was only a matter of time before the Federal Reserve (FEDS) decided to do something about it. Originally believing it was “transitory” (in their own words), inflation was actually just getting started, and similar to other times in history, the FEDS were late in correctly assessing the severity of the crisis.
FED speak soon hit the newswires, and they warned a reduction in Quantities Easing (Q.E. for short and basically is money printing) was coming. They also revealed an increase in interest rates was to be undertaken. The news prompted the first sell off beginning in January. The market anticipated the usual 1/4% increase we had often seen in the past.
Once that bitter pill was swallowed, the markets somewhat stabilized, only to be rocked again when the FEDS upped the ante and starting talking about 1/2% increases. Investors appeared to shake that off after another market set back, and then the Ukraine problem hit the wires.
The first few weeks of late March and early April offered up some hope with some green numbers bouncing the markets and indeed, many key metrics signaled the worst might be over. The market looked like it had somewhat stabilized until the FEDS once again raised the stakes and mentioned possible 3/4% increases were on the table.
Subsequently, and hence therefore, Friday turned more than ugly. Investors likely saw red in their portfolio balances and probably more red then they have seen in a long, long time.
Keeping in mind no one can predict market movements at any time, we can only guess as to what will happen next. Will we once again wash the bad news down with the elixir of time, and see the markets rebound? Or will the carnage continue and test the March lows once again, which would be another 900 or so Dow points? Could it even go lower?
We won’t know the answer until it is well in the rear view mirror.
Keep in mind, the FEDs haven’t even done anything yet. So goes the effect of interest rate announcements on the market. Sometime the anticipation of the event causes more damage than the event itself. Buy the rumor, sell the news, or sometimes its sell the rumor, buy the news.
The key to the whole thing will be how inflation responds to the FEDS actions and whether the FED’s current plan of interest rates increase does the trick, or if even stronger medicine may be needed.
That said, the majority of what we hold are “Aristocratic” dividend payers, which have increased dividends every year for at least 25 years. Some more than 50 years. These tend to be more stable and pay us to hold them. We also hold some select index funds. Roth accounts do hold more “growth stocks” so Roth accounts will likely move more than other accounts. My account holds the same stuff and I am not worried since I have a long term view and know I will earn more every year if their track records are kept intact. As for the growth stocks, most are NASDAQ type stocks whose prices were already obliterated when we bought them. Yes, they could to lower, but we bought them up to 85% off from their previous highs.
I will reiterate again however. Fixed Indexed annuities have a nice window to acquire them and it is when markets sell off. Remember, they cannot go down, only up. If markets go down, you don’t. If markets go UP, your balance rises. So right now I am writing a lot of these as investors, nervous from seeing red, scoop up the opportunity. I highly recommend a select FIA that offer interest guaranteed, and principal guaranteed. The participation in market rallies is another feature. I think of them like a CD that can track market direction instead of just sit there. Now could be the time to acquire some of these.
Concluding, if the markets look to move farther down in concert, we will off an index fund(s) in a stop loss move to look to preserve capital and dry powder for lower prices should they occur. Meanwhile note the payments to you in the form of dividends in your statements as they should be increasing more and more as we have been slowing adding these companies.
Market routs are never fun. But lower prices mean higher yields, and better prices, hence better opportunities. Remember, the interest rates increases are meant to cool an economy that is too hot. Too hot means moving too fast. There are other things causing inflation as well, but consumer demand for goods and services is part of it. Interest rate increases are meant to help an economy get healthy. So in the long run, these increases are good for the markets. But like medicine, sometimes it tastes bad going down.
“Watching the markets so you don’t have to”
Marc
ARTICLE FROM YAHOO
(Why you need an active trader as an advisor in these markets)
Forget the FAANGs. It’s a stock picker’s market now
Investors who have been blindly buying Big Tech stocks got a rude awakening last week after Netflix imploded. But the good news from Tesla proves that some top momentum stocks can still thrive in this rocky market.
The latest results from Tesla (TSLA) and Netflix (NFLX) show how silly it is for investors to buy into themes and memes like the FAANGs, or MT. FAANG, if you want to add Microsoft and Tesla (TSLA) to the quintet of Facebook, Amazon, Apple, Netflix (NFLX) and Google.
This is a stock picker’s market, my CNN Business colleague Paul R. La Monica reports.
“This environment will create an important backdrop for active investing,” said Ken McAtamney, head of William Blair’s global equity team, in a report.
One of the biggest mistakes that an investor can make is assuming that all stocks in a certain sector should rise and fall in tandem. That’s an overly simplistic, binary view of the world.
Instead, investors need to do their homework and find companies with strong business models and healthy fundamentals.
“Not all businesses are created equally,” said Paul Moroz, chief investment officer with Mawer Investment Management.
The Big Tech leaders of the Nasdaq are a broad and diverse group. That’s why investors shouldn’t assume that Netflix’s problems are bad for the rest of the tech sector, or that Tesla’s good news gives traders the all clear sign to buy every surging stock in sight.
“First quarter results so far highlight our view that investors need to be selective,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a report last week.
By Anneken Tappe, CNN Business
Published 7:44 AM EDT, Sun April 24, 2022
Disclaimer: This is not a recommendation to buy or sell any securities. May include forward looking statements. Past performance is not a guarantee of future results. No one can predict market movements at any time. Investing involves risk. You can lose money, including total loss of principal. Consult your tax advisor for all income tax related questions. Stop-loss strategies utilize stop orders which turn into market orders, so they may not limit losses. Dividends are not guaranteed and may be cut or eliminated at any time and may not prevent losses. Annuities are not FDIC insured and are insured and guaranteed by the underlying insurance company only. Early withdrawal penalties may apply. Management fees are not allowed once funds are moved to an annuity. Annuities may or may not be suitable for all investors. Indexed funds attempt to track the underlying index but are only a proxy for that index and may or may not track the index exactly.
Special note: For those wishing principal guarantees and possible market upside participation, you may consider a fixed indexed annuity. Purchased annuities have no management fees and are 100% principal protected. These I have found are desired by those that cannot tolerate any losses whatsoever, or are extremely sensitive to any kind of loss. They also will participate (rise in value) if the market (S&P 500) rises between the applicable time periods as set forth in the contract, so they have a minimum guaranteed interest of 7.2% over the life of contract OR you get a portion of the increase in the market. The greater amount of the two is what they guarantee and always 100% guaranteed to get at LEAST all your principal back and a MINIMUM of 7.2% on the entire balance OR the market upside, whichever is GREATER. The best of both worlds. Contact me for details.
