The Stock Market calms back down, then gets volatile again

We were a little late getting last month’s newsletter out because of the breaking news about the breaking stock market. After reaching an all-time high of 26617 on January 26th, the Dow fell more than 2000 points over the next several days to 24346. Then after a one day reprieve, it fell again all the way to 23860, losing a total of 10.36% in nine trading days. There had not been a 10% correction in the market in over two years. It shook a lot of people in the “this time it’s different” crowd. Our managed portfolios got whipsawed a little because our short-term indicator went negative for a few days (causing us to reduce our stock exposure) before turning back positive a few days later (there is no system that will be right all the time). Then the market settled back down and starting to advance again. That was, until this week. As I write this newsletter now on Friday morning, February 2nd at 10:00 AM, the last three days have been negative to the point of 1000 Dow points and not looking too good for today. It is now about 2000 points from its high of January 26th. However, one thing that the correction may have signaled is a return to a more volatile market. 2017 was the least volatile year for the stock market in history. And since the beginning of this current bull market on March 10th, 2009, volatility has not been much of an issue. Volatility is not a bad thing, it’s just something that needs to be considered when investing. We do take volatility into account in our portfolios. We consider a lot of research when building our models and we listen to many different opinions. For example, we see that the Cyclically Adjusted Price to Earnings ratio (a 10 year look back) is at historically high levels, more than double their historical mean. But because company earnings have been growing so fast lately, the 18 month forward projection has the market looking relatively cheap. Since there is no consensus on the direction the market will take (is there ever?), we continue to watch it daily, study it constantly, and make changes when necessary. After all, you hired us to take care of your investments and to try to make them grow. And that’s just what we continue to work toward.