Hi everyone. Welcome to our October 2012 newsletter. We purposely delayed getting the newsletter out this month under after the election, since that we such significant event. We’ll talk about that in depth, but first I’ll recap what went on in October.
Looking at the chart for the S&P 500 for the month, we see that we had a couple of attempts to push the market higher, but finished near the lows at the end of the month. The S&P was down 1.8%, the Dow off a little more at 2.4%, but the international was up .8% which is where we had about 2/3 of our equity allocation deployed. Most of the later part of the month reflected the disappointment with some earnings reports. Actually, the earnings were better than expected, but the guidance (or future outlook) from the companies concerned the markets that a slowdown is ahead. The major economic indicators and Europe were relatively quiet so more attention was placed on the earnings. Just another example of how difficult it is to predict how the market will react: good earnings numbers and the market sold off.
As for the election: what an ugly process we have created in our political system. From the amount of spending on advertising to the unpopular Electoral College to the extreme partisan bickering, it was a painful thing to witness. It seems like nobody “won” without getting their nose a little bloodied. So how will this affect us going forward? We’ve already seen a sharp selloff since the election: since Nov. 1 the market is down 3%. But let’s go back and look at the market activity surrounding the last Presidential election. From Oct. 27th to Nov. 17th in 2008, the market dropped 17% so we are far better off this time around. Of course, there were other issues contributing to that market drop; not just the result of the election. As you can see, the market bottomed out on March 2nd in 2009 which was a total decline of 29% from Oct. 27th five months earlier. From that point, the market climbed 115% to its peak on Sept. 10th this year. Of course, that peak was still lower than the all time peak of 1526 in July of 2007.
Over the last four years, the economy has struggled ahead slowly, almost as in slow motion. I would predict the same for the next four years if it weren’t for the Fiscal Cliff facing us in Jan. as the government will be forced to either raise taxes or cut spending, or both. Remember the last time the government was forced to address this issue? That was August of 2011 and they didn’t deal with it and that’s how we’ve gotten to where we are now. It’s hard to forecast a solution to this problem that doesn’t carry painful side effects.
So we’re taking protection in the portfolios and reducing the equity holdings down to only one. If the market sells off further from this point, we’ll wait patiently for an opportunity to get back in. If it somehow finds a positive in what it sees and starts back up, we’ll respond as quickly as we can to capture any sustained run up. Right now, I’m more concerned of what we could lose than what we might miss gaining.
Also, this month, we’re including a couple links to articles that I’ve been quoted in. Please let us know what you think. That’s it for this month. Thanks for listening. As always, please share this video with friends or family. Talk with you next month.