Well, it was sure nice while it lasted.
The last five trading days of November saw the biggest percentage rise in the stock markets in 75 years, leading many investors to hope that the market meltdown might finally have ended. The S&P 500 Index shot up 19.1% from November 21st through last Friday, the 28th, bringing with it some much needed holiday cheer and better nights’ sleep.
But the bear woke back up this morning, proving it had only been sleeping, not hibernating. When the market closed today (Monday), the Dow was down 680 points (7.7%) and the S&P 500 was off by 8.93%, essentially giving up half the gains made during the previous five-day rally.
The three catalysts in today’s decline were:
- Two economic reports that came in slightly worse than had been expected.
- A confirmation by the National Bureau of Economic Research that the US economy had entered into a recession in December, 2007.
- News about the post-Thanksgiving holiday shopping.
I get the first two concerns, but really take issue with the holiday shopping reports. According to figures released by ShopperTrak RCT, a research firm that tracks total retail sales at more than 50,000 outlets, sales over Friday and Saturday rose 1.9%. Given how bad we have been led to expect retail sales to be going forward, shouldn’t we be leaping for joy that sales are actually UP at all?? Only in the media could such news be construed as terrible. But because last year’s Black Friday weekend holiday sales were up over 8% versus 2006, they’re choosing to make a 2% rise seem bad. But we had RECORD-BREAKING retail sales, for crying out loud!
Where to from here? We have more economic reports coming out this week that are expected to be depressing. As I have been saying, at some point, the market will begin ignoring the current month or week’s bad news, and focus on what is expected to happen six to nine months from now. Until that happens, we will probably continue seeing extremely choppy days like we have since September, unfortunately. One analyst said something that made sense to me, when he commented that the bad news needs to start getting a little less bad before we can start moving forward in a sustainable new bull market.
That sounds reasonable, but these economic reports are released throughout the entire month, and on a daily basis. They are released before the market opens, during the trading day, and after it closes. So it is very likely that the spark will be a report that comes seemingly out of the blue and without warning, and could ignite a very powerful market rally–the type we have seen over the last several months. I know I’ve been repeating this like a broken record, but again, it doesn’t make sense to miss out on that by getting out of stocks now.
So far, we have only had two clients go to cash. Everyone else has hung tough with their long-term asset allocation plan, and we have been really pleased and humbled to see all of you willing to ride it out and avoid turning paper losses into real ones by selling your stocks, which in most cases you don’t need to touch for several years to come.
If stocks are making you miserable, then get out if you must — but do it gradually, with baby steps. Move no more than 10% of your stock portfolio into cash or fixed income securities. Wait one full month, and then give yourself a gut check to see whether you want to move another 10%. By then, you may feel you can wait it out.
You will be receiving your November statements this week. Even though the last week of November was fantastic, the Dow ended up down 5.3% and the S&P down 7.5%. While your November statement won’t be great, it won’t be nearly as bad as October’s.
So what are we doing about this? As we said in our phone call the week before last, we are going to redeploy a portion of the money you already have in equities into the stock funds we believe will be the first to recover when the recovery finally arrives. Those are large, well-capitalized US companies that pay good dividends. We will trim some of the holdings you have in other types of stocks to fund these additions, and will not reduce the money you currently have in safer assets.
Meanwhile, please call me if you need to talk. I welcome your calls ALWAYS.
We all hope you had a great Thanksgiving holiday, and that you enjoy the upcoming holiday season.
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