Daily Market Update – November 10, 2015 (7:30 AM)
For people who like to track such things, yesterday’s very unexpected and unwarranted market decline brought the DJIA. on a YTD basis to a loss.
The S&P 500 isn’t very far behind and stands only about 20 points, or 1% away from the flat line, with only about 7 weeks left to go in 2015.
It’s really hard to say what was responsible for yesterday’s sharp decline, which was actually less of a sharp decline after it all settled.
It could be that some finally came to the realization that we’re about to enter into an era that we haven’t seen in about 9 years, as the FOMC has to be getting as ready as it ever has to institute that very first interest rate hike.
However, given the fact that no one believes that rate increase will be more than 0.5%, with most in the 0.25% camp, it’s equally hard to understand what the logical basis is for the belief that even the larger end of that rise would result in any meaningful slowing of any economic expansion.
That’s generally the fear, but it usually only becomes a real issue when in hindsight you come to the realization that the cumulative interest rate hikes over time have tipped the economy.
That’s just not likely to occur with the first in a series, especially when there’s no indication of a really heated up economy that’s in danger of boiling.
Besides, history shows that the early stages of interest rate increases are during a healthy economy and a healthy stock market.
That’s what you would expect if the market is looking at fundamentals and is also discounting the future 6 months, as is widely believed to be the case.
Who knows what accounted for yesterday, but this morning shows some moderation as the futures are trading, although they showed the same thing yesterday and then the bottom just dropped out when the bell finally rang.
With yesterday’s decline I wasn’t as enthused about spending money from cash reserves as I might have been had the decline been more moderate. I just like to have some idea of why a market is climbing strongly or declining strongly, especially the latter.
The exercise of hindsight may demonstrate that it would have been a good idea to dip further into cash reserves, as most declines since the August correction began have represented some good entry points.
The difference here, perhaps, is that even with yesterday’s decline, the S&P 500 is now only down about 3% from its all time highs. That leaves plenty of room for more downside, especially given the uninterrupted climb higher since the beginning of October.
I’ll still be on the lookout for anything that may seem like a bargain today and would be especially attracted to more dividend paying positions, but caution may still be warranted.
At this point, I’m more concerned with positions expiring next week and am hopeful that among them will be some assignments and rollovers. I don’t really want to add much to that list if buying any other new positions this week and would like to get much better diversified in terms of expiration dates.
That will be played by ear as the week plays itself out.