TGIF! October 17, 2014

This was as wild a week as we’ve seen in years.  Market volatility came back with a vengeance, which also brought back fear.  The DOW and S&P finished the week merely 1% below where they started.  But that didn’t tell the whole story.  At one point on Wednesday, both indices were down 4.5% on the week effectively hitting a 10% decline from September highs.  It all happened so fast.

So what changed you might ask?  Nothing really.  The same issues that investors feared last week are still lurking namely: global economic slowdown, increased violence in the Middle East, and the threat of an Ebola epidemic.  Was the panic overblown? Tough to say.  Investor sentiment is a fragile thing.  Confidence really hasn’t been very strong for 5 years, so it didn’t take much to get people really spooked.  The Ebola threat seems to be stimulating fear.

It has been 3 years since the last 10% stock market correction.  That’s the longest stretch since the 1990’s.  Historically, there’s a 10% correction every year and a half, so it was overdue.  Was this week the bottom?  Our sense is no, but perhaps close.  For it to be a healthy market bottom, it will need to be re-tested and proven.   We think this whipsaw action will be around for a bit longer.  Long-term investors are used to this activity in October.  Most bottoms are formed in October setting up a year-end rally.  There’s still a lot to like in this Market and some bargains as well. 

The 3rd Fed quantitative easing campaign is set to END next week.  Now there’s growing sentiment for more Fed support not less so the timing of actual rate hikes could be pushed out; For better or for worse.  Inflation is absent. Falling oil prices is actually deflationary. Interest rates have continued their slide in 2014, something very few anticipated.  Our bond valuations are loving it and performing well in October.

Speaking of performing well in October, how about those San Francisco Giants!  It’s been a spectacular postseason run that has them back in the World Series again.  They just find a way to win.  Nobody picked a Giants-Royals series back in March.  Heading into the playoffs, the Giants were given a mere 4.9% chance of winning the World Series by Vegas odds-makers.    Only the Royals were given a smaller chance, at 2.7%. One of them will win.  It just goes to show, no matter how much you prepare, life brings many surprises.  It’s been a wild week for sure.

Have a nice weekend.  We’ll be back dark and early on Monday. 

By: Mike Frazier

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