The S&P 500 hit an all-time high in May of 2015 at 2130. It has been downhill since then with a free-fall in the index during the middle of August where it slid to 1867. Many investors were shocked at the 12% plunge but were relieved that the markets recovered over the next two months—or did they? On January 20th, 2016 the S&P 500 was back down to 1860 and it is becoming obvious to even the most bullish investors that we may not recover for quite a while.
Jeff’s Weekly Stock Market Commentary: Looking Back
Happy New Year!
Most investors will be happy to have 2015 in the rear-view mirror. The S&P 500 eked out a 1.4% return including dividends. Excluding dividends it was down -0.73%. A total return of 1.40% for the S&P 500 is the worst annual return since 2008. Overall, that sounds rather tame, but both the stock and bond markets gyrated more in 2015 than they have since 2009.
Jeff’s Weekly Stock Market Commentary: The Fed Conundrum – Will They Or Won’t They?
The Fed announced in late October that there is a live possibility that they will raise rates in December. The very announcement of that initially caused bonds yields to spike (going from 1.98% on October 14th to 2.34% on Nov 10th) and caused losses for those that are heavily invested in USTs.
Traditionally, the Fed lowers interest rates to spur the economy and raises rates to slow it down. There was one jobs report in October that was very positive (and that seemed to spur the Fed on), but virtually all of the significant data released since then has shown economic weakness both here in the U.S. and abroad.
For instance, the UK recently announced that it is emerging from its troubles and stimulus is no longer needed. Then the UK Construction PMI was released showing a dramatic slowdown: dropped from 58.8 to 55.3. The UK has been stronger than other European countries but may just be the last to begin slowing.
Jeff’s Weekly Stock Market Commentary: Secret To Buying Low and Selling High
Everyone wants to sell high and buy low.
The old adage about investing is that you should buy low and sell high. And that is sage advice. The question is how do you put that into practice? This may sound simplistic, but in order to buy low you first have to sell high!
The S&P 500 set all-time highs last July. ALL-TIME. So, does that mean that you should sell now and move to cash and/or US Treasury bonds and wait for the market to correct?
In 2000, the market hit an all-time high and declined soon after 46%. In hindsight, any time between March and September of 2000 would have been a great time to sell all of your equities and move to cash. Those that did would have maintained their account balance while those that didn’t sell likely saw losses of 46% or more. Those that didn’t sell their stocks and instead held through that crash missed their chance to sell high.
Those 5-10 years or more from retirement have time and money on their side.
For those who are retired or near retirement, the number one priority must be to avoid significant losses. Many investors experienced losses of 30-60% in the crash of 2000-2003 and then again in the crash of 2007-2009. Depending on their age at the time, those who were still working and contributing to their 401k’s recovered over the ensuing years.
Keep in mind, though, that much of that recovery occurred because they continued to put more money in on a monthly basis. Their monthly contributions over the years 2000-2002 and/or 2007-2009 went into a market that had retreated by almost 50% from the highs. As the markets resumed their uptrend their accounts gained ground quickly.
That taught some investors that they will be fine as long as they hang in there because the markets will eventually recover and all will be fine. That may be true for those that are still 5-10 years or more away from retirement. They are probably at the highest salary level of their careers and are able to contribute a higher percentage of their income to their retirement nest egg. They have time and their income on their side.