Blame it on…

david —  August 27, 2013

whomever or whatever you want.  The fact is that markets go up and come down with regularity.  Analysts have given more than a few reasons for the current market correction.  One popular reason the that the market is worried about President Obama’s choice of a replacement for Fed Chairman Ben Bernanke.  Supposedly the market is worried that it will be Larry Summers.  Larry is absolutely the smartest guy in any room he enters.  Just ask him and he will tell you that it is true!  However, if he is selected the markets will have to adjust and I doubt if he will be either the best or the worst Fed chair ever.  So It is unlikely that worries over his possible nomination is the cause for the market sell-off.  Then there are those who blame the crises in Syria and Egypt.  While it is possible, I find it highly unlikely that anything that happens in Syria will disrupt oil from the Middle East.  I would also say that it is highly unlikely that the military in Egypt will allow traffic in the Suez canal to be disrupted in any meaningful way.  Simply put, they have the weapons and the opposition does not.  Then there is the reason dejour.  The Feds imminent tapering of its stimulus will slow everything in the economy down.  However, the Fed recently released its own study which said that quantitative easing has had a negligible impact on GDP.  Their current estimate is that the impact of QE on GDP is less than 1%.  In any event the Fed will not be withdrawing the stimulus all it once.  It will happen gradually over a period of months maybe even years.  My guess is that it will take at least 18 months, maybe more for the fed to cease the asset purchases it has been engaged in since the recession.  Maybe it is the confluence of all these events.  However, more than likely it is just what markets do….fluctuate!  It shouldn’t be a surprise to anyone that a market that gained over 20% since the beginning of the year would give some of the gains back.  We hope that you heeded our last blog and where prepared for declines in the market.  Stop losses allow you to keep the stocks that go up and get out of the ones that go down.  Continue to do so as we don’t know how deep the correction might be.    Looking at the chart below one can see that the S&P was in the 1560 area just 8 weeks ago!  In March the S&P was in the 1480 area.  You can also see that I have added a lower trend line to last week’s chart.  Today’s market action violated that trend line as well.  Markets will fluctuate.  Sometimes more than others.  Our job is to be prepared.