The stock market, for years a friend to anyone with money in the market, has now turned. Flat is the new up and down is the new normal. On the financial cable shows there is great wailing and sadness. The party is definitely over.
Calling any equity based investment “safe” these days has an oxymoron, like Jumbo Shrimp. Stretching for loftier returns means risk, a lot of it; wiping out your entire investment type risk. There’s another word you could apply to today’s stock market that we haven’t heard in a long time: Normal. How quickly we forget that on a 10 year timeline the stock market returns an average of 6%-8%. Some years between 2009 and 2014 the return was closer to 20%. You didn’t have to be a stock market genius to figure out a day of reckoning would be coming.
Flat Is The New Up
The investing world right now is in a bit of turmoil because the stock and bond markets are getting pounded at the same time. Equities are in turmoil because of China, then Volkswagen, and more recently biotech stocks cratered when Hillary Clinton suggested they were gouging the public on the price of new drugs. It’s been a rough quarter for stocks and markets are down 9% from their highs in August. It’s hard to believe it was just August when we were all basking in double digit returns.
Cash Is King
No one is getting rich off the interest they earn from money market accounts. In spite of that cash is king right now because it’s not losing ground. The dollar is still running hot against foreign currencies and the buying power of cash is near record highs. Those who rebalance a diversified portfolio, which should be everyone though few actually do it, will be seeing the numbers prompting them to shift out some cash into the stock market, an amazing turnaround from just a few months ago.
It’s hard to get too worked up about the pain in the stock market when we’re in the spot we are because of irrational exuberance in the first place. No, making 13% and 18% on the stock market is not normal. Making 4%, 6% and 8% is normal. The last six years have bred a lot of bad habits in small investors. When you’re making thin margins, then fund management expenses mean a lot. Many people started breezing past those numbers while focusing on the big return numbers.
Santa Claus Rally
All hope is not lost for the stock market, which is still hoping for a Santa Claus rally this year. You know the phrase “sell in May and go away”? Well, September is traditionally the month you buy back in. Historically, October and November are the two most productive months in the stock market.
The Federal Reserve has markets in a tizzy right now, but that could change with the first glimmer of some actual leadership from the Fed. It’s quite likely that by now the Fed is feeling the heat in both world markets and the media and realizes that its prudent image is really coming across as weak and indecisive. If the Fed finds a way to adjust that perception and instill the markets with some confidence then we could see a fourth quarter rally that would at least get us back in the 17,000 range.