I can’t help but comment on the feeling that I’m getting as the markets have been changing over the last couple weeks. There is a nervous feeling on Wall Street as stocks have undoubtedly been impacted. In just the last week alone, the SPX Volatility Index has moved a good 70% and is up substantially because of the retreating that we are seeing in the stock market and the inherent volatility that is being experienced. In fact, the VIX has not been this high since June of 2012.
In general, there is just a nervous feeling that has shifted in the waters. The S&P 500 Index wiped out its rally for the year as weaker-than-forecast economic data. Quite frankly the market is in a bad mood, and stock prices have been negatively affected by worse than expected consumer spending and slowed manufacturing among other things over the last week. The war is being raged on all fronts with precious metals being slaughtered, oil prices hitting two-year-lows, and the equities markets pulling back.
Many things could be attributed to this including the fear of a full-blown outbreak of the Ebola virus or just the simple fact that there hasn’t been a 10% correction in stocks in almost three years. There’s no doubt that 2014 has been a year of cooling down in the stock market. 2013 was a year of very exuberant growth with the broad based indices seeing a 30% return and conventional wisdom getting really excited about stocks again. This is typical because it’s normally very late in the game when the herd decides to join the party. In 2013, it didn’t seem like there was much negative news that would even affect the prices of stocks; everything had forward momentum, and this is typical when markets get bubbly.
I actually saw this first hand in the precious metals sector in 2011 when the lines were out the doors with people attending trade shows. Sure enough that was the year everything peaked, and we’ve been in a bear market ever since.
In the last three days, the market has dropped 5% and has come off about 8% from its high. The reality is that this is very normal trading and corrections help to flush out many investors who have profits, and for a new base of support to form at higher prices.
My continued opinion which I have been advocating for is if you are young and have years on your side, focus on buying great companies and suck it up when corrections like this or worse happens, because two decades plus down the line you will have a machine of growth. If you are older and are dependent on immediate use of your savings, consider alternatives to invest in and start purchasing income at this point in your life. Get away from capital growth and shift towards an income producing model for the majority of your savings.
As a value investor and a speculator, I am very interested in oil companies that are being especially slammed with the price of crude oil dropping into the $80 range, and potentially lower in the upcoming days and weeks. When you look at most stocks across the board, oil companies are the ones that are taking the brunt of the beating and presenting investors the biggest discount on their stock accumulations at the moment.
Moments like this are when the Smart Money accumulates and dumb money has no plan. Don’t try and time the top and call the bottom, have a plan and take as much emotion as you can out of the decisions that you are going to make.
Chief Editor at CrushTheStreet.com