Markets Go Up, Markets Go Down. Its Important to Keep Perspective.
Equities start the day higher as we finally get a bounce out of the depths of market hell. I swear it’s been FOREVER since I wrote a Friday recap but I feel compelled to for a couple reasons. The first is that when storms rage it’s important to keep things in perspective. Markets go up, markets go down, some of the best days follow the worst days so what good is it to run around like a chicken with your head cut off? The second is that price action like we’ve seen this week emphasizes how important it is to create a durable plan that you can stick to even when it looks like the sky is falling. Josh Brown put it best last night “you know what conversations clients aren’t having with their advisors this week? Basis point fees.” Advisors earn their fees when they keep clients from making catastrophic decisions at the absolute worst time and that alone is worth MULTIPLES of what the client is paying. One bad decision because the market corrected 5% (which it does, on average, 3.5x a year) can potentially throw huge amounts of gains into the gutter. Look, nobody knows where the market is going to be today, tomorrow, a week from now, or a year from now. What we are trying to do (especially the wonderful advisors here at Baird) is make high probability decisions. Take a look at this chart which shows the probability of the market being negative on any given day. On a 1 day basis it’s a coin clip, but if you stretch your timeline the odds of the market being negative start to plummet. Chance of it being negative over 1 year? 26% 5 years? 12%. 30 years? ZERO. So as you sit there huddled with your advisor looking at the carnage in your stock account I want you to be thinking this: isn’t it great to have someone to talk to who, instead of saying “well my gut says this is almost over” instead says “here’s what statistics tell us, let’s look at the longer run and focus on where the sun nearly always shines” because the first way of thinking has zero value whatsoever, the second way of thinking has immense value. Oh and if you don’t have someone who does that, who uses a clear, logic based investment process, send me an email, I’ll help find you one of our best here at Baird.
After the open we went higher probably because we were oversold, but mostly because @CNBC had a “Markets in Turmoil” show last night. Now I love the good people at @CNBC, @carlquintanilla is one of my favorite follows on TWTR, but when they do these kinds of shows you know that sentiment is reaching max negativity. @charliebilello points out that after this show runs $SPX forward returns are all kinds of Irish green. But while we started the day to the upside it was inevitable that selling would hit the tape. There’s a popular maxim that says “markets don’t bottom on Fridays” and that reared its ugly head around noon ET. I guess sellers did not want to go gently into that good night my friends and by 1pm our gains were gone, poof, like my will to live walking around a Farmers market. A bunch of banks reported but they may as well have been screaming into the wind. JPM, WFC, C, and PNC all said various things then suffered from random price action because they are acting like macro economic indicators right now. Alright we need to shorten this section up because literally no one is reading it. Winners NFLX, ATVI, TTWO, V, and CRM. Losers PNC, KEY, FCX, GE, and F. By lunch we were hoping, praying, that the market would finally stabilize.
Which we did, kinda. Selling stopped after lunch and a small rally got us to 2,766 where we closed up 1.4% (and right on the 200day). That’s not bad, that’s a decent bounce, but technical damage is everywhere, we aren’t out of the woods yet. Allow me to end on a metaphor which should tie up my thoughts from the first paragraph. Everyone says that the market is all computers and that computers should do everything in our financial lives. But is that true? Should we allow them to manage us completely? Let’s look at another heavily automated industry to see if there’s a lesson to be had there. Airline pilots use the flight computer for nearly the entirety of a modern jet trip. They engage it right after takeoff, let it fly most of the way, then take back the controls right before landing. 98% of the time the computer handles the workload and everyone in the back smiles while eating tiny pretzels and drinking tomato juice. But when something goes wrong, when a light flickers a warning and the stewardess’ start looking around in abject terror you know what doesn’t handle the plane anymore? That’s right, the computer. And in that moment, when our need is the greatest, the salary of the pilots could be $20mm a year and they’d be worth every penny. People matter, they always will, fear and greed will always exist in markets and the help of a professional can save you from catastrophe. In that moment, they are worth everything to you. Final Score: Dow +1.1%, S&P500 +1.4%, Nasdaq +2.2%, Rus2k +0.09%
Volume was high. News Highlights:
- Succinct Summation of the Day’s Events: I’m gonna be honest, even though we bounced today it didn’t feel like full risk on. Hopefully the weekend settles people down.
- I have three links tonight and they are all worth reading so please, check them out. The first is JC, a brilliant technician, on what he sees now: “I was consistently bullish because the weight of the evidence pointed that way. This is no longer the case and our approach has had to adapt over the past week to a new environment.”
- Who benefits from a correction? “The swift market sell-off we’ve experienced this week is painful for anyone in the stock market. Investments outside the U.S. have done even worse. Now is a good time to remind yourself that there’s a bright side to this pain. To work through this dichotomy, here’s a list of those who would benefit the most from a continued stock market sell-off”
- Saying “don’t panic” isn’t really all that helpful right now: “The time to prepare for a bear market is during the bull market. After all, everyone is a comfortable genius during a bull market and most people turn into panicked fools during bear markets. And yes, while it’s precisely right to tell people not to panic during the downturn of a rollercoaster it’s even more important to make sure you’re not getting on a rollercoaster you aren’t comfortable with”
I wanted to end on a link showing what it felt like to buy stocks this week. This one will do fine.
Have a good night