“Stock market corrections, although painful at the time, are actually a very healthy part of the whole mechanism, because there are always speculative excesses that develop, particularly during the long bull market”. Ron Chernow
“The stock market takes an escalator up and an elevator down”. Old cliché
Where are we, at the end of October?
The month of October was very ugly. The major indexes were sharply down across the board. As you can see below, many were down over 10%. Obviously, no one wants to see this happen to their account. Everyone wants to know: when will my account recover? I’ll start by giving some context to all this. The stock market averages one drop of around 10% every year (called a “correction”. In 2017, we had none. In February, the averages dropped close to 10% early in the month, HOWEVER, mostly recovering before month end. Therefore, it was not as noticeable, and is the more common occurrence.
In addition, volatility is exacerbated by program and robot trading, exaggerating excesses and runs both up and down.
I noticed that even the fixed return investments were barely breakeven for the month. Some of the decline in stocks was traceable to rising interest rates, which hurts bonds and fixed returns generally.
Corrections are very difficult to dodge. The risk is that you will be buying back in at higher prices than you sold. Corrections really are part of the game. If you don’t want to be exposed to corrections, we need to discuss moving all or more of your money to fixed. The odds are that this will cost you returns longer term, BUT for some people it’s more about the “sleep better” factor.
The most important question for me as advisor is whether we have just experienced a major bull market top, meaning we have a much farther drop and much more time in front of us before a “buy signal” develops. If that were the case, then surely it would make sense to sell. However, the signs of that major bull market top are just not evident to me. Nor are those signs evident to Lowry’s Institutional, whose statistical analyses of the stock market are very thorough. Given the absence of such signs, I am expecting that we will recover.
There are those people who say that you never, ever sell – you just wait for the markets to recover from whatever happens. My objective is to attempt to protect (as well as I am able) against the “full blown bear market” such as 2002 and 2008, as opposed to “corrections”. I reiterate: that is my objective.
How Did the Markets and our Funds Do in October?
All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns, for October:
| Oct 2018 | |||
| S&P 500 | -6.94% | ||
| Nasdaq (technology) | -9.20% | ||
| Dow | -5.07% | ||
| NYSE Composite | -6.68% | ||
| Russell 2000 (small co) | -10.91% | ||
| US Aggregate Bond Index | -0.64% | ||
| ONEQ | -9.25% | Fidelity Nasdaq | Fidelity commission free ETF |
| IJR | -10.53% | iShares Small-Cap | Fidelity commission free ETF |
| FENY | -12.13% | Fidelity Energy | Fidelity commission free ETF |
| FTEC | -8.70% | Fidelity Info Tech | Fidelity commission free ETF |
| FDIS | -9.19% | Fidelity Discretionary | Fidelity commission free ETF |
| FHLC | -7.69% | Fidelity MSCI Healthcare | Fidelity commission free ETF |
| FBIOX | -15.27% | Fidelity Biotech | stock mutual fund |
| FSMEX | -10.41% | Fidelity Medical Equipment | stock mutual fund |
| FCNTX | -9.72% | Fidelity Contra Fund | stock mutual fund |
| FBGRX | -10.35% | Fidelity Blue Chip Growth | stock mutual fund |
| PSGAX | -9.89% | Virtus KAR Small-Cap Gr | stock mutual fund |
| FKDNX | -11.89% | Franklin Dynatech | stock mutual fund |
| CFRAX | -0.03% | Catalyst floating rate | fixed income mutual fund |
| EIFAX | -0.04% | Eaton Vance floating rate | fixed income mutual fund |
| FFRAX | -0.17% | Fidelity floating rate | fixed income mutual fund |
| GIREX | -0.26% | Griffin real estate int rate | fixed income mutual fund |
| RNDLX | -1.47% | RiverNorth Strategic | fixed income mutual fund |
| FAGIX | -3.74% | Fidelity Capital & Income | fixed income mutual fund |
| LENDX | 0.20% | Stone Ridge Alternative | peer to peer fixed return m.f. |
| Prime Meridian Small Bus LP | 0.44% | 1 month lag | private peer to peer fixed return |
| Prime Meridian Real Estate LP | 0.66% | 1 month lag | private peer to peer fixed return |
| KIP, Kay Income Partners LP | 0.56% | private mortgage fund | |
| * through September 2018 |
Your investment return(s) for the month of October was/were as follows:
We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.
Best,