October 15, 2014
To all FMI clients:
Re: Market Volatility
It looks like we are in for another round of volatility fueled by many geo-political and health-care factors:
Ebola has the entire planet concerned that what was an epidemic contained in West Africa may become pandemic. Health care workers, scientists and epidemiologists are racing to perfect the protocol for treatment.
Protestors in Hong Kong continue to petition for Democracy peacefully, which is a good thing; however, the uncertainty of government reaction is another concern for markets to consider.
The drop in the price of oil, while benefiting consumers with lower prices at the pump, is a negative for future earnings of major oil companies such as Exxon-Mobil, Chevron, Conoco-Phillips and others; and the collateral adverse effect to job growth, consumer spending and exports adds to the negativity effecting one of the largest domestic industries.
The eventual outcome of conflicts with ISIS in Syria, Turkey and Iraq is vague at this time. The U.S. is trying to resolve the incursions with air support and limited ground engagement while engaging one of the most barbaric enemies we have faced in decades.
The effect of these factors on future revenues and earnings has the experts guessing, no one has the magic answer.
So the Dow Jones Industrial Average has corrected from a high of 17,332 on September 19, 2014 to today’s low of around 16,000 or about 7.7%. While some suggest that a 5-10% correction was past due, in this market that has risen from a low of 6,500 only five and one-half years ago, the speed of this drop fueled by the five factors mentioned above has caught most by surprise.
While we are convinced in the long-term benefit of investing, our reaction over the last two weeks has been to liquidate or reduce those positions we believe to have the greatest risk, holding all sale proceeds and all deposits in the money market account. We are simply holding cash until we feel more comfortable with the direction of the market – we are not reaching for a falling knife.
Historically, this country has overcome economic events more desperate (the financial crisis or 2008), and enemies more lethal (WWII), health care crises more demanding (polio for my generation) and energy pricing cycles for centuries. I remind you that the graph for all security market indices is not a straight line up – rather it is a series of peaks and valleys that ultimately became growth.
For those who would like more reassurance just give us a call – 226-4058.
Jack, Mike and Kayla