Explore Our
“Off The Wall” Blog

Unique, straight-forward, unfiltered opinion on topics of concern for individuals with newfound wealth.

Worst Week in 3 Years

No Money

The upside is that it has been three years since we have seen a weekly sell-off of something like 678 points (-3.8%) on the Dow.  I remember back in 2008 when we’d see that in one day.  This was primarily caused by some skittish behavior based on some perceived near-term uncertainty caused by falling oil prices.  I’m trying to remember when the opposite happened… oil spiking really fast and the market surging up 100 points in the final hour of trading, or 678 points (+3.8%) for the week on that kind of news. Ebola was something I could see a sell-off over… but cheaper oil?  Step away from the “Sell Button,” people.

My opinion?  The benefits of lower oil prices will offset any risks.  Falling oil prices do pose threats like damaging energy companies’ profits.  Since they make up a large component of market and price-weighted indices like the S&P 500 and the Dow, sell-offs in the energy companies can leak over into other asset classes. Not to suggest 678 points on the Dow is merely a ‘leak’… but ‘overflow’ seems more dramatic so I’m going with leak.

Weekly Market Returns

Weekly Sector Returns

We just simply believe lower oil prices will help economic growth in the long term. I think people will find other things to buy with the money they used to spend on gasoline and heating oil.

But it wasn’t just oil… there were worries over Greek politics too. The Athens Stock Exchange General Index lost 12.5% last week.  Seriously… Greece!?  With no disrespect to my Greek friends, I feel like every time there is news out on Greece it’s like telling me that the 18-year-old family dog is getting old.

So let’s move on.

One thing you are going to hear more about in the future will be concerns that the collapse in oil prices may trickle over into the credit markets.  The fear is that the plunge in oil prices will make it more difficult for the highly leveraged firms to meet their loan payments. According to the Schwab Center for Financial Research, energy companies make up 15.4% of the Barclays U.S. Corporate High Yield Bond Index, versus 10.3% in 2013. The energy sector is second only to communications. Since 2010, energy firms have raised $550 billion through new loans and bonds (Bloomberg).

Research firm CreditSights, Inc. predicts the default rate for high-yield energy bonds will double to 8% in 2015.

When investors (I’m using that term loosely here) trade out of high-yield bonds, their price goes down.

Amid all of this panic over oil prices going down, there was a strong retail sales report for November that showed favorable spending trends. Oh, then there was the University of Michigan’s Consumer Sentiment Index… which hit its highest level since January of 2007. Oh, and that comes on top of November’s strong 321,000 rise in nonfarm payrolls.

So better economic news and plunging oil prices… all just in time for the Christmas shopping season.  If you’ve been naughty this year, you may get Greek Bonds in your stocking instead of coal.


Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Monument Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

David B. photo

David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

Learn more ...

Stay up to date!

Subscribe to our “Off the Wall” Blog for articles and videos on all things wealth management, by all members of our Team. Unlike Facebook, we will never share your data with anyone.