The market selloff — it all seems silly now

Written and Submitted to IVCBA By David Vomund

Hundreds of points up, or hundreds down.  Whatever, it’s just another day on Wall Street.  Blame traders, short sellers, and people that became too comfortable with leverage.  

Every so often the stock market runs into a rough spot and prices fall fast if only briefly.  One such spot was overdue.  Sometimes there are catalysts, usually economic news, but in many cases it’s a matter of profit-taking after a good run.  That describes early August.  Profits were taken.  Cash generated went into energy, utility, financial stocks and fixed income vehicles, all of which rallied.

As you’ve read here I continue to focus on earnings and interest rates, the driving forces that move stocks.  For 78 percent of companies second-quarter earnings were better than expected, but the tone was subdued.  Several CEOs are saying consumers are under pressure and less confident in the economic future and their own.  With the average credit card balance of $6,200 consumers are unable to spend as they’d like.

The macro data also show a softening economy.  Not a looming recession but a slow-growing economy.  Typically, there are job losses ahead of a recession.  We see just the opposite now.  

The stock and bond markets are often leading indicators, and if so today the latter is saying demand for credit will moderate or decline in the slowdown, which is why rates on the ten-year Treasury have fallen back to 3.8 percent.  For months I’ve been urging investors to nail down bonds or preferreds while rates were higher.  The opportunity is still there, though less rewarding.  Treasury bond ETFs are already up 3 percent over the last month.

Over many years we have seen several stretches in which stocks sold off as they have recently.  Much like the market in 1987 stocks had a good run to new highs this year with the most speculative stocks leading the way.  Little remembered is that in 1987 the market then rallied and went on to close higher for the year.  Just like then, the bull market isn’t over.

Fortunately, it is no longer a seven-stock bull market.  The Invesco S&P 500 Low Volatility ETF (SPLV) is up 10 percent this year and was stable in early August even when the S&P 500 faltered.  It is easy to own.  So are energy issues, especially Williams Cos (WMB) and Oneok Inc. (OKE).  When you own good securities then there is no need to keep jumping into and out of the market.

David Vomund is an Incline Village-based Independent Investment Advisor.  Information is found at www.VomundInvestments.com or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.