|Dow||-115.15 to 16,544.10|
|S&P 500||-22.08 to 1,906.13|
|Nasdaq||-102.10 to 4,276.24|
|10-YR Yield||-0.02 to -2.307%|
|Gold||-$1.70 to $1,223.60|
|Crude Oil||-$0.04 to $85.73|
Let’s cut straight to the chase here: Volatility is exploding!
The Dow Industrials plunged a whopping 335 points yesterday … just 24 short hours after it rallied 275 points. And that wasn’t a two-day affair either. We’ve seen several days now of 100+ and 200+ point moves both up or down.
So what does it mean? Could a nasty “October Surprise” be looming? Or even a market crash?
It’s no secret that October can be a scary month for investors. Some of the worst declines in history have taken place this time of year.
The Dow plunged 12.8 percent on Oct. 28, 1929 — and another 11.7 percent the next day in the great market crash of that year.
On Black Monday, Oct. 19, 1987, stocks crashed by an even more stunning 22.6 percent.
During the credit market meltdown, the Dow collapsed 7.9 percent on October 15, 2008.
And during the Asia economic crisis, it plunged 7.2 percent on October 27, 1997.
This time around, with the Dow much higher, an equivalent point decline to some of those would be pretty shocking. A decline of 7.2 percent would equate to around 1,200 or so points, given where the Dow was trading earlier today. A decline of 12.8 percent? That would be around 2,100 points. And 22.6 percent? That’s a stunning 3,700+ points!
|On Black Monday, October 19, 1987, stocks crashed a stunning 22.6 percent.|
Of course, with the current “circuit breaker” rules, a significant selloff would trigger trading halts. Declines of 7 percent, 13 percent and 20 percent in the S&P 500 would cause trading to be suspended — for 15 minutes in the first two instances, and the remainder of the day for a full-on 20 percent wipeout. Those only apply before 3:25 p.m. Eastern time. If the markets tank late in the day, no halts would occur.
It’s one thing to discuss those events. It’s another thing entirely to predict them. Right now, I am not doing so.
But the deterioration in some sectors and in small caps, the heightened volatility in the market, and the ongoing meltdown in economies like Europe’s is definitely reason enough to take some profits off the table. It’s also reason to maintain a healthy cushion of cash, to reduce risk in your portfolio, and to look at some downside hedges if you’re more aggressive.
That’s exactly what I’ve been doing in my services, and I think those are prudent steps to take. Because if there’s one thing to remember about October surprises, it’s that they are indeed surprises. You don’t want to get caught off guard with no protection in the event of a big downturn — or no cash on hand to take advantage of the bargains those downturns can create!
|“It’s no secret that October can be a scary month for investors.”|
So let’s get right down to it: What are you doing in response to the recent volatility? Are you pulling in your horns and/or getting “short” the market? Or are you taking advantage of it to add more exposure on the cheap? Any sectors you are most afraid of? Or the least? What likelihood do you see of a nasty October surprise?
Definitely join the discussion right here — because there’s a lot you can learn from each other at turbulent times like these.
|Our Readers Speak|
The “Euroglut” column yesterday brought out some great comments from many of you.
Reader John S. said: “So the Europeans are putting THEIR money into the U.S. — but it is still their money. That means it is ‘hot money’ like the foreign money put into Thailand and other doubtful places way back when.
“What happens when the Europeans decide they want their money back? Obvious. Enjoy while it lasts.”
Meanwhile, Reader Dean added: “If it’s not bad enough that the Fed has produced more Monopoly Money than one could have ever conceived of, now we have Europe’s Monopoly Money adding to the frivolity.
“And what might this mean? Well I believe that if we thought that stocks were already being irrationally priced up, and if we thought that this all was inflating the bubble, well then we haven’t seen anything yet. This just could be the perfect storm … stock prices being super-levitated into the stratosphere.”
Of course, Dean also said that wouldn’t last forever. His view of what would happen down the road: “All will finally be enlightened by the incredible bright streak across the sky caused by the falling market as it burns up while re-entering the Earth’s atmosphere!”
Finally, on the subject of the economy, Reader Frank E. said we still face plenty of problems. His view: “This may be the ‘strongest economic growth in several years,’ but that is scraping the bottom of the barrel.
“There is no growth in wages as so much of the job growth is part time workers. Thank you Obamacare! Our economy is a mess! Yes, Europe is worse, but we are following along in their footsteps thanks to BHO’s taxes and regulations.”
Well, it’s hard to argue that regulation and tax policy is holding us back. I agree, and have said so in these pages.
The key questions now are 1) Whether Europe’s unfolding recession is enough to drag domestically focused companies down here in the U.S. … and 2) Whether the flood of money coming here from Europe is enough to float asset values despite the economic challenges out there.
We don’t have the answers yet. But the recent market action is troubling because it suggests the negatives are starting to gain the upper hand. Please do weigh in with your thoughts.
|Other Developments of the Day|
Is the Federal Reserve running out of bullets? Or stated another way, are the Wall Street shills finally accepting what I’ve been saying all along: That the Fed’s medicine is doing nothing to cure what ails the economy, and even more QE won’t make any difference?
That’s what a Citigroup analyst just wrote, and it could explain why the release of dovish Fed meeting minutes only bought stocks a “one day wonder” rally.
Semiconductor stocks got pummeled today after Microchip Technology (MCHP, Weiss Ratings: B) warned of weaker-than-expected sales. That adds semis to the list of key sectors that are breaking longer-term uptrends … a troubling sign overall?
Declining oil prices are squeezing OPEC countries and starting to put pressure on U.S. drillers. So will that prompt output cuts when the cartel meets in late November in Vienna? Or will we see a unilateral cut from, say, Saudi Arabia before then? Keep an eye out for developments like those if crude oil prices don’t firm up soon.
Who’s running nuclear-armed North Korea? Where is the ostensible head of the country, Kim Jong Un? Nobody seems to know! He’s gone AWOL since September 3, leading to speculation he may have been replaced, gotten sick, or just become the latest in a long line of officials to disappear in the backwards dictatorship.
Until next time,
P.S. Don’t forget to check out Martin’s Ultimate Portfolio! This is the strategy that could have handed a gain that’s 4.6 times better than Buffett’s Berkshire Hathaway shares; 6.0 times better than the S&P 500; and enough to multiply your money more than seven times over despite the Great Recession! Click here for details!