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It’s a little early for Halloween, but markets sure got spooked last week. After a 21-month ride to mid-September highs, stock markets jolted and shook investors last week like the most dramatic and scream-inducing rollercoaster at an amusement park’s fright night. Barron’s described it like this:
“The Dow Jones Industrial Average endured dizzying swings each day, with a 460-point move midday on Wednesday. That’s when the market came closest to hitting a correction phase – that is, down 10 percent from the highs. The Standard & Poor’s 500 index fell to 1,820.66, or down 9.5 percent intraday from the all-time closing high of 2011.36, before closing on Wednesday down 7.4 percent from highs.”
Despite the wild ride, by Friday’s close, major U.S stock indices were down about 1 percent for the week.
Restoring some perspective
After a week like last week, it’s important to take a deep breath and cast a calm eye over current financial and economic circumstances. This can help restore perspective and ensure sound decision-making. Here are a few points to consider:
When you add to the mix human emotion and anxiety that has lingered since the financial crisis, you create the potential for a week like the one we just had.
“Fundamentally, the market is fairly valued, but not overvalued, and the economic backdrop remains healthy. The U.S. economy looks to be growing at a healthy pace – 4.6 percent in the second quarter and an estimated 3 percent in the third. Third-quarter earnings are expected to rise 5.1 percent year-to-year, according to FactSet. Employment and manufacturing growth reaffirm the trend and, while retail sales slipped 0.3 percent in September, falling gasoline prices have boosted consumer confidence.”
Barron’s also pointed out that, at Thursday’s close, 35 percent of the companies in the Standard & Poor’s 500 had dividend yields that were higher than the 2 percent yield on 10-year U.S. Treasuries. The point being, market downturns often create opportunities.
Maintaining a disciplined approach
As you know, we have a disciplined investment process that was designed to help you work toward your financial goals. While we monitor economic and market developments closely, we don’t let the noise of day-to-day events determine our actions. We will not take action until our process indicates we should. It’s important for you to understand we make decisions about your account all the time, and much of the time we decide to do nothing. Although no strategy is assured success or protection against loss, we have confidence in our process. It is the reason we sleep well at night.
|Data as of 10/17/14||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 (Domestic Stocks)||-1.0%||2.1%||8.9%||16.3%||11.4%||5.4%|
|10-year Treasury Note (Yield Only)||2.2||NA||2.6||2.2||3.4||4.1|
|Gold (per ounce)||1.3||2.7||-6.4||-9.8||3.3||11.4|
|Bloomberg Commodity Index||-0.6||-6.6||-9.1||-7.2||-3.0||-2.5|
|DJ Equity All REIT Total Return Index||1.6||17.4||10.8||17.6||16.6||8.4|
S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
“Wealth is the ability to fully experience life.”
–Henry David Thoreau, American author
Kelly P. Campbell, CFP®, CMFC®, ChFC®, AIF®
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Campbell Wealth Management Inc. is a Registered Investment Advisor.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.
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http://online.barrons.com/articles/a-rocky-week-ends-with-a-rebound-1413612111 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-20-14_Barrons-A_Rocky_Week_Ends_with_a_Rebound-Footnote-1.pdf)
http://online.wsj.com/articles/ecb-officials-call-for-bold-measures-1413557882 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-20-14_WSJ-ECB_Officials_Call_for_Bold_Measures-Footnote_4.pdf)
http://online.barrons.com/articles/stock-market-bargains-abound-after-last-weeks-selloff-1413607551 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-20-14_Stock_Market_Bargains_Abound-Footnote_7.pdf)