Welcome to the November edition of the Asset Management Strategies’ Newsletter.
Hope everyone had a happy Thanksgiving. November was pretty much a flat month from beginning to the end of the month but there sure was plenty of drama in between. A lot of the volatility that came for the month came out of the news from Europe and there were also some economic indicators that recorded during the month that caused some gyrations as well. Let’s take a look at the chart. The chart that we use is from Yahoo Finance’s public website. Anybody can access this chart and look at the S&P 500. This is just a year-to-date chart for the S&P 500 and we’ll take a look specifically at November. The S&P 500 is the 500 largest stocks in the United States. So it’s more what we call the broad market index as opposed to the Dow Jones Industrial.
You’ll see here that we had a large market decline just before Thanksgiving. This really wasn’t so much related to the issues in Europe as it was some of the economic indicators that came out in a disappointing fashion. We had jobless claims, we had durable good orders, we had moderate personal income growth, we had downward revision third-quarter GDP numbers; all those contributed to the turmoil that we saw. We did have a month end rally mostly on rumors that the IMF was going to loan $600 billion to Italy and the IMF has now consistently denied that that’s going to happen. They seem to be focused on a lot of long-term solutions in Europe and they really need to focus on both long-term and short-term solutions. There’s a significant liquidity crisis that they need to resolve on the short-term basis I think once that a plan is in place then we can move on from that issue.
Interesting note for the month of November: we did see a 10% drop in just seven days and that dropped the market back down to a level that it had not been to since October 7, which was barely 50 days earlier. So what changed in that 50 days? What pushed the market up 10% and then very quickly sold that 10% right back down. A lot of that excitement I think you see in the market is because the gains in the markets are short lived but the losses are somewhat short lived. We’ve been in this range since roughly June and I think that shows a market that’s really confused. It doesn’t really know whether it wants to go up; it doesn’t really know whether it wants to go down. The markets left alone typically want to go up, but then you have bad news and bad news delivers a pretty significant level of fear and the market sells off.
The individual investor is still pretty frightened, sitting on the sidelines with literally mountains of cash; record levels of cash, and that cash is earning next to nothing. Until those individuals see if it’s safer to get back in the market, I think you’re going to see the market dominated by institutional trading and those trades tend to have big swings. Big swings up and big swings down. And, really, the gains are not substantiated and they don’t hold.
We did see a good start to the spending season. The numbers look pretty good and hopefully those will push economic indicators forward. But we are back on the sidelines as far as our allocation in the equity markets and we’ll wait for the market to move up and to hold on to those gains before we feel it’s safe to get back in. Hope everybody has a Happy Holidays and Happy New Year. Please call us or e-mail us with your thoughts or comments. Thanks for listening.