Don’t Trade This Market – Keep Your Cool

By David B. Armstrong, CFA | Oct 09, 2013 | Weekly Market Commentary

If you trade this market, I will send this Marine to your house to tell you in his own special way that it’s a bad idea.

Why? Because the partial government shutdown that began last Tuesday has had little impact on stocks so far. Remember, the Dow Jones Industrials Average (DJIA) represents 30 large companies, while the Standard & Poor’s 500 (S&P 500) represents (you guessed it) 500 large, medium and small companies. As you can see below, the DJIA fell -1.2% last week, but the S&P 500 fell a barely noticable -0.1% last week and the NASDAQ Composite was actually up, extending its winning streak to five weeks, finishing up 0.7%. Although it’s true that the S&P 500 has been down for nine of the past 12 weeks and down -2.0% off its September high, it’s still up over 18.5% YTD.

 

3^rd Quarter – That’s a WRAP

Start your holiday shopping now, it’s the 4^th quarter. Before you know it, it will be that weird time of year where it’s January of 2014, and you are still habitually writing 2013 on your checks. Although the 3rd quarter ended on a sour note with the shutdown, it actually performed well. Small- and mid-cap sectors outpaced large-cap sectors by almost double for the quarter. The best performing S&P 500 sectors were Materials, Industrials and Consumer Discretionary. We will have more details in our 3rd Quarter Review, coming out later this month.

Economic Data

Last week, there was an unexpected rise in the ISM Manufacturing Index, which improved from an index level of 55.7 in September to 56.2 in October. A reading of above 50 signals manufacturing expansion. Despite this nice increase, the ISM Services Index report showed slower growth. Again, a reading above 50 signals expansion. After hitting 58.6 in August, September’s reading came in weaker than expected – a 54.44 reading vs. expected 57.0

Pickup Trucks

Bespoke Investment Group tracks the sale of F150 pickup trucks. They are a non-traditional indicator of growth, but if you think about it, there are people who want a truck and people who actually need a truck for their work/job. Ford’s F-150 has been the top-selling pickup truck in the country for the past 36 years. So watching their sales is something worth…well…watching. Note the upward trending line from 2008 and the fact that 2013 has surpassed 2007’s sales numbers.  Bespoke’s chart is below.

Washington DC Circus – Continued

From my blog last week, the below are some important points (I’ve modified them a little since last week) everyone should consider.

• We’ve had 17 prior government shutdowns since 1976.
• On average, market reaction has been modest – see this blog for a great graphic.
• Social Security, Medicare, the mail, the National Weather service, air traffic controllers and the military will all be operating; it’s non-essential services that closed. Non-essential government services? Hummmm….
• No one in government will be working on releasing economic data, and that probably includes nonfarm payrolls and the unemployment rate, on Friday.
• The equity markets are up a little less than 1% at the time of this writing (11am – CNBC).
• Finally, the media has to write and report on stories EVERY DAY, meaning they always need something to fill airtime and newspapers. Take that into consideration here.

I have no more of an idea about what will happen than Speaker Boehner does…so I’ll leave it at this: Our conviction is to stay invested unless your need for short-term liquidity has changed.  The need for short-term liquidity should be the only reason an investor is selling right now. If you can’t sleep at night, your asset allocation does not accurately reflect your risk tolerance and you should call your advisor to update your long-term planning and allocations.

Stay convicted – there are plenty of fools out there trying to trade around the outcome of the potential shut down and the pending debt crisis. It’s like flipping a coin – some will be right and some will be wrong, but if you win one flip (sell and raise cash) you have to flip the coin again, guessing when to get back in to the market. Those are bad odds – even in Vegas.

Please call or email with questions.

Investment advice offered through Monument Advisory Group, LLC a Registered Investment Advisor (RIA). Securities offered through LPL Financial.  Member FINRA/SIPC.  Monument Advisory Group and Monument Wealth Management are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values.  The 2, 10 and 30 year Treasury is simply the yield at the close of the day.

⁽¹⁾      West Texas Intermediate crude spot price is as of end of week.

⁽²⁾      London Bullion Market Association; gold fixing pricing at 3 p.m. London time.