Today marked the 9th day out of the last twelve where the market sold off in a clear message that world governments need to get their acts together and control their fiscal, spending and regulatory policies. With the Euro currency at historic lows, demonstrations in Greece, an environmental offshore oil catastrophe, German bans on naked short selling, higher than expected weekly job claims, and financial regulatory reform debates going on, we’ve had the perfect storm to extend this market correction. Stock markets don’t like uncertainty and wishy-washy policy making, so they express their dismay by selling off risky assets. As of today, the major indices have given back all their 2010 year-to-date gains and then some. Nonetheless, the long term stock market uptrend remains intact, though as I’ve indicated before (May 6), we’re in for some bumpy times in the market for the summer.
I wish I could say that my crystal ball knew when this short-term pain to the downside would be over. However, all technical indications is that this move downward is a bit overdone, though admittedly the move to the upside was also overdone in the short-term. I believe that we’ll see a short or intermediate-term bounce in the next couple of days as value investors and bargain hunters swarm the markets. We will do the same as the waters calm down.
Indications from Washington are that we may get a vote on the financial reform bill (being debated) tonight and perhaps remove some of the uncertainty in the markets. I’m not sure what the Obama Administration will tackle next (immigration reform, tax reform, ban on sovereign bailouts, take your pick), but you can bet that it will also rattle the markets when it gets underway. The European Union appears to be working on a few measures to further restore confidence to the markets and those measures may come to light over the weekend or early next week. Longer term, we will have to contend with overseas currency and economic weakness, further sovereign debt issues, huge budget deficits, and a stubbornly high unemployment rate. For the time being though, we have an improving fundamental economic picture, ultra low interest rates, excellent corporate earnings, and plenty of unspent stimulus to keep the market uptrend going for awhile.
Because I felt that it was more likely than not that the majority of the short-term move downward was over today, I decided to lift about 50% of the contra-position hedge that I held on client accounts. This will allow portfolios to more fully benefit when the uptrend resumes. Leaving 50% of the position “on” allows me to be at least half-right in case there is more downside to come. This is just prudent hedging. Should the markets show signs of continuing their downward trend, then it’s just as easy to put the position back on and perhaps add to it. As of this moment, I see no negative longer term indicators in the markets that tell me that I should be liquidating equity positions and moving to a higher cash position.
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Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group. Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society. Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning. He specializes in entrepreneurs, professionals, company executives and their families.
All material presented herein is believed to be reliable, but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions. Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions. No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.
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