It has only been two short months since the financial press screamed that the world as we know it was coming to an end. We got up almost every day during July and August and saw headlines predicting some sort of financial calamity in the U.S. economy. You almost believed that there would be chaos in the streets and bread lines would circle the blocks. I really just had a hard time wrapping my head around that, despite they’re reasoning. Now we know their reasoning was fraud.
When the market starts to go down, it is very important to understand the reason for that downward turn. During July and August, I spent an inordinate amount of time researching economic trends to see if I could understand the dire nature of the financial headlines. I knew for a fact that interest rates were low and would continue to be low for years to come. I also knew that earnings were good, and if not for energy would be even better. But the most important thing I knew for a fact was the U.S. economy was stable and certainly not ready to spin into a recession. Based upon that analysis, as I predicted at the beginning of last month, the most likely course of action would be for the markets to move up rather than down. I think it is fairly clear that October was nothing short of spectacular from a stock market standpoint, and therefore we were right.
I want to take a minute to include a picture of one of my partners so you could get to know more about him, as he plays a very important role here. The above picture is of Eddie Wilcox (who you’ve most likely spoken to at one time or another) and his wife Jennifer, along with their two girls Harper (age 6) and Lucy (age 4). Eddie and his family have a long history with our company. Jennifer was the first of the two to come work for my company. Her first day of work was actually the day that my son, Joshua, was born. Needless to say, she showed up for work that day and I was out for the birth. Since Josh is now approaching 21 years old, it is pretty easy to calculate how long she worked for my companies.
Eddie came a few years after Jennifer and also has double-digit longevity with the firm. Since joining the firm, he has obtained his CFA and CFP, which are very prestigious financial designations, and is a partner on the financial counseling side. Jennifer left a few years ago to pursue grander things (if that is possible), but we certainly wish her well.
Before I get into the information I want to share with you this month, I need to report the numbers for the month of October. For the month of October, the S&P 500 was up a sterling 8.4% and has a one year return of 5.2%. The NASDAQ composite was up even more at 9.4% with the one year total return of 10.4%. The Dow Jones industrial average was up 8.6% in October and up 4.1% for the one year period then ended. The Barclays Aggregate Bond index was flat with no gain in October and has a one year return of 1.9%. There is no question that October was an excellent month, moving up to a very high level.
Just how good was the month of October? Let me count the ways.
• The Dow had the largest monthly gain ever up 1,379 points in the month of October. While it certainly was not the largest percentage gain of any one month in history, it was the largest point movement in any one month, ever.
• The S&P 500 has only had 12 monthly gains greater than 8% going all the way back to 1987, almost 30 years ago.
• Microsoft was up 18.93% during the month - an excellent month.
• Amazon is up 22.27% for the month - an excellent month.
• Not only was the U.S. market strong, the German Dax turned in its best month since 2009 with a gain of 12.32%. The UK FTSE 100 also had an excellent month, and its best month since 2013, with a gain of 4.94%.
• The much-maligned China Shanghai composite index returned its best month in over a year with a gain of 10.8% during the month of October.
• Japan’s Nikkei also turned in an excellent gain of 9.75%.
Therefore, it was not only a great month in the U.S., it was a great month in financial markets across the world. I often wonder just exactly what investors are feeling when we have downturns like July and August. Interestingly, we had very few calls during this downturn, mainly because I think most of our clients have been around long enough to realize these downturns would be short and the turnaround would be swift. Fortunately in this case, that was exactly what happened.
I also want to cover a couple of economic issues that may be important. The 2015 third quarter GDP preliminary announcement was for a gain of 1.5%. This number came in somewhat less than projected, and quite frankly, I believe it to be incorrect. If you look at the internals of the GDP, you will see that consumer spending and other consumer related components of the GDP were very strong. What was not strong was the fact that inventories were drawn down at a significant level, therefore creating a major drag to the GDP calculation.
It must be understood that there is no way the government could have an adequate read on inventories only 30 days after the end of the quarter. This number is basically a guess and may or may not be revised as we go forward. However, it is most unusual that inventories would suffer that major of a decline going into a strong business cycle. It is my opinion that once GDP is revised in the coming months, that number will go up significantly.
There is no question that over the last few months, manufacturing has declined in the U.S. This could be directly attributable to the strong dollar, and therefore the drag on the ability of U.S. manufacturers to export to foreign markets. It has gone down only a few percentage points from full capacity.
The employment numbers and the consumer strength maintain its strong upward trend. Although the economy continues to drift in the 2% GDP range, it clearly is not headed toward recession. While I do not anticipate a huge GDP movement to the upside, I certainly do not forecast one to the downside. My guess is that for the rest of 2015 and 2016 we will see an economy that basically averages 2.5%, with some quarters being good and some quarters not so good. I guess you would call it a Goldilocks economy – not too strong, not too weak.
As we move into what are historically the best months of the year for investors, I expect to see volatility continue to drive the markets. We are seeing big moves to either the upside or downside on an almost daily basis. This has very little to do with economics or valuations of stocks – mainly traders trying to recover from a period of time when they clearly were not on top of the investment world. As I have often mentioned, just stay invested in top quality companies. Short-term trading is a science that no one has ever been able to fully master. Peter Lynch often points out that there is not a single trader of stocks on the list of the wealthiest people in America – maybe that should tell you something.
For the rest of 2015, I predict that volatility will reign but the market will drift higher. And with a strong December anticipated, the total return of the market might even meet the projections I made in January 2015.
I know there are many people reading this blog who are sitting on tons of cash, earning exactly zero. I also know that many clients should have already made their IRA contributions for 2015, but have not (you know who you are). It always amazes me that when a store has a sale on its merchandise, people line up to take advantage of it, yet when the stock market was “on sale” in July and August, people didn’t even want to consider investing.
In summary, my predictions for October worked out very nicely. I also predict that investing in stocks at the current time is the absolute best way to plan for your retirement. Sitting in cash, earning zero, is a false science and will almost assuredly leave you short when retirement comes.
Now is also a great time to come and visit with us and discuss your financial plans. We would certainly welcome seeing you and getting updated on your life, and making sure you are on track to meet your goals.
As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
When the market starts to go down, it is very important to understand the reason for that downward turn. During July and August, I spent an inordinate amount of time researching economic trends to see if I could understand the dire nature of the financial headlines. I knew for a fact that interest rates were low and would continue to be low for years to come. I also knew that earnings were good, and if not for energy would be even better. But the most important thing I knew for a fact was the U.S. economy was stable and certainly not ready to spin into a recession. Based upon that analysis, as I predicted at the beginning of last month, the most likely course of action would be for the markets to move up rather than down. I think it is fairly clear that October was nothing short of spectacular from a stock market standpoint, and therefore we were right.
I want to take a minute to include a picture of one of my partners so you could get to know more about him, as he plays a very important role here. The above picture is of Eddie Wilcox (who you’ve most likely spoken to at one time or another) and his wife Jennifer, along with their two girls Harper (age 6) and Lucy (age 4). Eddie and his family have a long history with our company. Jennifer was the first of the two to come work for my company. Her first day of work was actually the day that my son, Joshua, was born. Needless to say, she showed up for work that day and I was out for the birth. Since Josh is now approaching 21 years old, it is pretty easy to calculate how long she worked for my companies.
Eddie came a few years after Jennifer and also has double-digit longevity with the firm. Since joining the firm, he has obtained his CFA and CFP, which are very prestigious financial designations, and is a partner on the financial counseling side. Jennifer left a few years ago to pursue grander things (if that is possible), but we certainly wish her well.
Before I get into the information I want to share with you this month, I need to report the numbers for the month of October. For the month of October, the S&P 500 was up a sterling 8.4% and has a one year return of 5.2%. The NASDAQ composite was up even more at 9.4% with the one year total return of 10.4%. The Dow Jones industrial average was up 8.6% in October and up 4.1% for the one year period then ended. The Barclays Aggregate Bond index was flat with no gain in October and has a one year return of 1.9%. There is no question that October was an excellent month, moving up to a very high level.
Just how good was the month of October? Let me count the ways.
• The Dow had the largest monthly gain ever up 1,379 points in the month of October. While it certainly was not the largest percentage gain of any one month in history, it was the largest point movement in any one month, ever.
• The S&P 500 has only had 12 monthly gains greater than 8% going all the way back to 1987, almost 30 years ago.
• Microsoft was up 18.93% during the month - an excellent month.
• Amazon is up 22.27% for the month - an excellent month.
• Not only was the U.S. market strong, the German Dax turned in its best month since 2009 with a gain of 12.32%. The UK FTSE 100 also had an excellent month, and its best month since 2013, with a gain of 4.94%.
• The much-maligned China Shanghai composite index returned its best month in over a year with a gain of 10.8% during the month of October.
• Japan’s Nikkei also turned in an excellent gain of 9.75%.
Therefore, it was not only a great month in the U.S., it was a great month in financial markets across the world. I often wonder just exactly what investors are feeling when we have downturns like July and August. Interestingly, we had very few calls during this downturn, mainly because I think most of our clients have been around long enough to realize these downturns would be short and the turnaround would be swift. Fortunately in this case, that was exactly what happened.
Joe and Dakota - 18th Hole at Pebble Beach
Halloween 2015
I also want to cover a couple of economic issues that may be important. The 2015 third quarter GDP preliminary announcement was for a gain of 1.5%. This number came in somewhat less than projected, and quite frankly, I believe it to be incorrect. If you look at the internals of the GDP, you will see that consumer spending and other consumer related components of the GDP were very strong. What was not strong was the fact that inventories were drawn down at a significant level, therefore creating a major drag to the GDP calculation.
It must be understood that there is no way the government could have an adequate read on inventories only 30 days after the end of the quarter. This number is basically a guess and may or may not be revised as we go forward. However, it is most unusual that inventories would suffer that major of a decline going into a strong business cycle. It is my opinion that once GDP is revised in the coming months, that number will go up significantly.
There is no question that over the last few months, manufacturing has declined in the U.S. This could be directly attributable to the strong dollar, and therefore the drag on the ability of U.S. manufacturers to export to foreign markets. It has gone down only a few percentage points from full capacity.
The employment numbers and the consumer strength maintain its strong upward trend. Although the economy continues to drift in the 2% GDP range, it clearly is not headed toward recession. While I do not anticipate a huge GDP movement to the upside, I certainly do not forecast one to the downside. My guess is that for the rest of 2015 and 2016 we will see an economy that basically averages 2.5%, with some quarters being good and some quarters not so good. I guess you would call it a Goldilocks economy – not too strong, not too weak.
As we move into what are historically the best months of the year for investors, I expect to see volatility continue to drive the markets. We are seeing big moves to either the upside or downside on an almost daily basis. This has very little to do with economics or valuations of stocks – mainly traders trying to recover from a period of time when they clearly were not on top of the investment world. As I have often mentioned, just stay invested in top quality companies. Short-term trading is a science that no one has ever been able to fully master. Peter Lynch often points out that there is not a single trader of stocks on the list of the wealthiest people in America – maybe that should tell you something.
For the rest of 2015, I predict that volatility will reign but the market will drift higher. And with a strong December anticipated, the total return of the market might even meet the projections I made in January 2015.
I know there are many people reading this blog who are sitting on tons of cash, earning exactly zero. I also know that many clients should have already made their IRA contributions for 2015, but have not (you know who you are). It always amazes me that when a store has a sale on its merchandise, people line up to take advantage of it, yet when the stock market was “on sale” in July and August, people didn’t even want to consider investing.
In summary, my predictions for October worked out very nicely. I also predict that investing in stocks at the current time is the absolute best way to plan for your retirement. Sitting in cash, earning zero, is a false science and will almost assuredly leave you short when retirement comes.
Now is also a great time to come and visit with us and discuss your financial plans. We would certainly welcome seeing you and getting updated on your life, and making sure you are on track to meet your goals.
As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
