Market’s Long Overdue Correction Seems to Be Starting

8 04 2013

Jonathan N. Castle, CFP®, ChFC®

Jonathan N. Castle, CFP®, ChFC®

I thought I would take just a moment to let everyone know that we have been watching the market closely. It looks like the long upward sprint the market has taken over the last 4 months might be coming to a pause.

This is not unusual at all; billions of dollars have been fed into the capital markets over the last 4 months as the veil of uncertainly about taxes and fiscal policy has been lifted. Pension funds and individual investors have flooded the stock markets and stock mutual funds with more dollars this past quarter than we’ve seen in a long, long time. Wall Street’s traders have seen their target prices for stocks met, exceeded, and exceeded again. In general, the economic data we’ve see reported has been mostly positive, with just enough bad news to remind us that the stock market still has its dangers, but not enough to get investors worried that another recession is around the corner.

So, with the information we have at present, it looks like we are in for a regular, run-of-the-mill correction of about 3 to 7%. This happens, on average, 3 times per year, and is the normal breathing of a healthy and functioning market.

It is important to keep in mind that large, painful, and excessively long bear markets typically occur only during times of great economic upset (Great Depression, Great Recession, Tech Bubble Burst, Oil Embargo). We are monitoring all of our indicators and have far better warning systems in place than existed in 2007 and 2008, and expect to be able to sidestep a great deal of the damage that those “Perfect Storms” tend to dish out. At this time, Recession Alert(TM) places the odds of the United States economy entering a recession within the next 6 months at only 6.4% – indicating that the stock market remains the best place to be for investors trying to stay ahead of taxes and beat inflation.

However, unexpected or “surprise” events can turn a normal 5% correction into an abrupt harsh 20% correction. This occurs every 3-4 years, on average. Good examples are the stock market “crash” of 1987, the breakout of Desert Storm, minor recessions, the downgrading of the US debt in 2011, and other geopolitical occurrences. Currently, we have two primary concerns that would fall into this category – the prospective bailout of Cyprus (and the EU issues that seem to never end), and the possibility of Kim Jong-Un actually engaging in real military conflict for no apparent reason other than to appear as a strong leader to his people.

The risk of military conflict does not lie in Korea’s ability to hurt the US; that risk is minimal from a military confrontation perspective. While the North enjoys a huge advantage over the South in artillery abilities, those abilities would likely be quickly eradicated by the overwhelming air superiority the US and the South enjoys. The real risk lies in the possibility of China, South Korea, or Japan entering any such the conflict and creating massive instability in the Far East. I believe that China would likely rather see peace in the region, but so far, they have taken a wait-and-see approach.

Whatever happens, we will remain vigilant and observe events as they develop. Ultimately, I believe that normal market functions will continue and am very optimistic about some of the developments we see occurring within our economy – especially in the areas of energy production, rail, manufacturing, home-building, and electronic medical records. I feel it is likely that the decade-long “Secular Bear Market” we have been mired in for the last several years is approaching an end, and that now is a great time to be a long-term investor! However, it remains important to make sure that investors are aware of their risk tolerances – and that portfolios are constructed properly in order to weather those occasional unexpected thunderstorm that can blow in rapidly and give us an uncomfortable bump now and then.

S&P500 1 Year Chart

S&P500 1 Year Chart

Jon Castle

http://www.WealthGuards.com

This blog is for informational purposes only. This is neither an offer to purchase nor sell any securities. All investing involves the potential of loss – including invested principal. Indices quoted are general barometers of security price movement. You cannot invest directly in an index. All information is obtained from sources deemed reliable but not guaranteed. Past performance is not a guarantee of future performance. No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256 (904) 861-0093 www.WealthGuards.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements

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Stock Market at a 4-year High… Again…

23 08 2012

While it has been an unusually long pause between market updates this time, I can assure you that we were not asleep at the wheel. In this instance, no news was good news, as the stock market has maintained its generally upward trend for the past several months with only moderate volatility for us to endure.

As of this writing, the United States stock market is approaching the high of 13279 on the DOW and 1419 on the S&P500 that it had previously reached on May 1st of this year, before the 10% correction that we went through during June and July. Since then, we have had generally uninteresting economic news on the domestic front, no real political unrest that has given us pause, and the Europeans continue to struggle through massive debt issues and one of the worst recessions that region of the world has had to face in several decades.

It can be easy to fall into the trap of thinking that “something good” must actually happen for the stock markets to go up. This is actually not the case. Given the fact that bond markets have gone up continually over the last several years, the current prices of bonds are so high, that most investors have begun to realize that future returns of the bond market are likely to be disappointing. We are beginning to see a shift of capital from what is historically an asset of moderate risk and return (bonds) to an asset class that historically has been riskier – but is currently acknowledged to be undervalued (stocks – especially blue chips).

As a result – nothing spectacular is happening in the economy to move us measurably forward, but as money shifts from bonds to stocks (or from sideline cash to stocks) – the price of stocks will tend to move up simply as a result of supply and demand. In other words – beause more and more investors are dissatisfied with the expected returns from bonds in the forseeable future – stocks seem like a more attractive alternative, especially for long-term investors. The current owners of the stocks must be convinced to sell them – and this “convincing” is done by investors paying higher and higher prices for the stocks over time.

Approaching a new or previous high is not without danger, however. Those who have invested for a while also understand that when the market approaches a previous high mark, it may fail to break through – almost as if an invisible lid has been placed upon the market itself. Sometimes, even in bull markets, the market must pull back and “take a new run” at the “lid” to break through. Currently the market does not have a great deal of momentum; while investors are buying stocks, they are not doing so with enough gusto or wild abandon for us to be convinced that a breakthrough will occur. So… a potential correction may be in store for us.

As we have mentioned before, we are of the belief that the stock market will likely remain in a “trading range” for several years – with a slight slant to the upside (just enough to make investing worthwhile, I suspect) but not a roaring bull market that we enjoyed after the last recession. Instead, we are likely to enjoy several months of upmarkets, followed by several months of downmarkets… squeaking out 7 to 8% returns on an annualized basis, and paying for it with a good bit of volatility and lack of market direction. Dividends will likely play a significant role in creating portfolio growth. We have adjusted portfolios to try to maximize investor returns (within risk tolerance) for this scenario, and continue to admonish patience.

Most experts believe that we are unlikely to see any real economic or fiscal news between now and the election. While it is possible that world events may cause unrest, or that some good news may come out of Europe that bolsters markets for a while, in general it seems that most institutional investors are in a “wait and see” mood. Market movements, however, can give some insight into likely election results. A strong stock market during an election year has historically increased Presidential approval ratings and would likely increase the chance of the current President being reelected. If, on the other hand, the market should falter between now and November, incumbent approval ratings are likely to decline, thus increasing the odds of the Romney/Ryan ticket being successful on election day.

Jon Castle

http://www.WealthGuards.com

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093  www.WealthGuards.com  Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements





The Market feels a bit… “Toppy.”

5 03 2012

Jonathan N. Castle, CFP®, ChFC®

Where does the time go?  It is already nearly the end of February and it seems like 2012 is speeding along faster than last year!  So far this year, the financial markets have been reasonably good to all of us, with the S&P 500 up about 8.5%, the Dow up 6.6%, and the NASDAQ up an eye-popping 13.9% as of this writing.

The Dow Jones Industrial Index has broken through the psychological barrier of 13,000 – the highest it has been since March of 2008 a few times now.  In fact, the markets have been remarkably – almost eerily – calm for the last 3 months, quietly marching upward, shrugging off the occasional bad news (such as the Greek bailout nearly unwinding last week and the ever increasing tension over oil in the mideast) with little more than an occasional flinch. 

As we have said for the past 8 months, we remain cautiously optimistic.  “Moderately Bullish” is a term that I have used in the past.  Based upon historical behavior of Secular Bear Markets, we expect that over the next 3 years or so, we will see substantial ups (and downs) in the markets with a slight overall uptrend.  

As it pertains to the current rally, we believe this leg of the rally is probably due for a drawback of some kind.  The next chart shows our reasoning for this.  When the market approaches a point where it had difficulty breaking through previously (such as the Dow’s 13,000 level), this is known as “resistance.”  Typically, as a market index approaches a resistance level, it generally will pause, draw back, and then, IF the level is to be broken, will punch through that level to achieve new highs.  Similar to a person drawing back before breaking through a door, the market will generally draw back before “breaking out” to a new level.  As we are at that resistance level now, a drawback would be a natural – even necessary – part of a normal market rally. 

Despite the recent market rally, we do not feel it is time to break out any party hats on a new sustained bull market just yet.  There are a number of reasons to remain cautious about the markets:

  • According to the Investment Company Institute – the total inflows (new money) going into equity (stock) mutual funds from February 1st through February 15th was a little over 4.6 Billion Dollars.  While this seems like a lot, compared to the inflows to bond funds, which netted 15.2 Billion – it was just a trickle.  Clearly, investors are not ready to assume lots of stock market risk just yet, and the recent rally did not have the market breadth that would indicate the start of a new bull market.
  • The price of oil is going up.  Part of the reason is that US refineries shut down every May to retool to EPA requirements, so oil nearly always rises during this part of the year.  However – increased tensions in the mideast are also driving oil prices higher.  Higher oil prices mean slower economic growth.  As businesses must pay more for energy, they spend less on payrolls and other things which drive growth.
  • Europe’s financial situation is still quite a mess.  While it seems that the European Union is working feverishly to keep from imploding – and they may well succeed – the fact is that Europe is already mired in what appears to be a deep recession.  This will have a global impact, slowing growth in emerging markets as well as within the United States.
  • Our National Debt is a significant problem – and only getting worse.
  • We are in an election year, so significant economic policy will likely not be passed until next year.  Given the uncertain outcome of the 2012 elections, it is anyone’s guess as to whether any new policies will be helpful or harmful.
  • The Bush tax cuts are set to expire this year.  This expectation is curbing business spending.
  • And the list goes on… given the recency of the 2008 market crash, investors are not yet hungry enough for returns to take additional risks and dive head first into the markets. 

However – there are numerous reasons to be bullish as well.  Institutional investors are slowly beginning to see the opportunity in stocks – and have publicly stated their plans to acquire more stocks in their portfolios over the next several years in preparation for a future bull market.  Some reasons to own stocks – and to expect the market will go up are: 

  • Stock valuations are more attractive than they have been in decades.  Based upon the price of stocks compared to company earnings, stocks are cheap.  In the past, investors who loaded up on stocks at current valuation levels were handsomely rewarded over the next 10 years.  Institutions know this – and their demand for stocks during this period may well keep the market afloat.
  • We are seeing a new “flurry” of IPO’s (Initial Public Offerings).  New companies – such as Facebook – offering publicly traded stock for the first time.  Historically, when there are a lot of IPO’s, the market does well.
  • We are seeing a significant increase in companies buying back their own stock.  Not only does this activity boost the stock market – but it is also an indication of what company insiders think of the future prospects of their companies.  Who would spend good money to buy their own company stock – unless they believed the company woud do well?
  • Corporations are hoarding more cash than ever.  While initially this might seem a bad sign – it is a an indicator of the huge potential that exists.  Eventually, this cash will be deployed.  When it is – there is enough of it to have an enormous impact upon virtually all parts of the economy.
  • Currently, the dividend yield on the Dow Jones is a very attractive 3.07%.  So, hypothetically if the market only goes up 5%, an investor who owned the Dow Jones would reap over 8% in total return.  It is only a matter of time before return-starved pension funds, institutions, and corporations currently investing in Treasuries earning less than 3% begin to move money to other assets to seek greater returns.  When this begins, the market has the potential to move up very quickly.

This balance between bullish and bearish factors is a normal part of the recovery process, but makes for a challenging investment environment. In summary, we remain cautiously bullish, with an expectation for occasional market corrections which may exceed 20% or more.  Likely, it will feel like taking three steps forward, only to take two steps back.  However, we feel that reasonable gains are available with the correct strategy.  The most successful investors that we have worked with have carefully chosen their risk tolerance, and then invested in portfolios scientifically designed around that risk tolerance – and remained focused on the long term.  

This blog post is not personal investment, financial, or tax advice.  Please consult your financial professional for personal, specific information.  Indexes mentioned are a general barometer of the stock or bond market they represent.  You cannot invest directly in an index.  Past performance is no guarantee of future results.   

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services offered by Paragon Wealth Strategies LLC, a registered investment adviser.  http://www.WealthGuards.com 





Looking Forward to 2010!

12 01 2010

 By Jon Castle, CFP®, ChFC®

It is with a tremendous amount of optimism, hope, energy, and commitment that we at PARAGON feel as we look forward to 2010!  Those who know me well would NOT say that I am a rose-colored-glasses wearing optimist – but more of a pragmatic, “let’s move on with what we need to do” type of optimist.  No doubt, we as a society and as a nation have a good bit of work to do – but from a historical perspective, things have never been better.  I believe 2010 and the years beyond will be great, great years!   Despite the “Great Recession, as a human race, we are still undergoing the greatest creation of global wealth of all time.   New and previously unimaginable inventions are being made almost on a daily basis.   On a global scale, our collective knowledge is estimated to double every 11 hours within the next few years.1   And as Americans, whatever your political leanings or frustrations with our government or our health care system may be – you have to admit – things are even better here than in most other places in the world.

As far as the economy goes – Capitalism is still functioning.  The creation of wealth through innovation, invention and distribution of goods and services continues.  As 2010 unfolds, new inventions, products and services will be unveiled – as will the jobs and benefits that accompany them.  Economists who are “down in the mouth” about our future are looking rearward and crunching old numbers – but our world continues to march forward, and in most cases, the old math simply doesn’t apply.   Just to put this in perspective, I thought I’d take a little trip down history lane.  While I’m not a historian per se, I do enjoy drawing comparisons and parallels to what has happened in the past with what is happening now, or may be likely to happen in the future.  So, let’s have a look, shall we?

Today – most Americans enjoy luxuries beyond the imaginings of even the most powerful kings who ruled 500 years ago. Indoor plumbing.  Heated living quarters.  A car instead of a carriage.  Medicine and scientific health care, versus wizardry and leeches.  A life expectancy of 80 years instead of 45.  Great kings of yesteryear would sell their kingdoms in a heartbeat to live as an average family lives in America today!  Yet many people think we are “on the wrong track…”

Today – we hear and worry about the H1N1 Virus – the “Swine Flu.”  Yes, we should be concerned – so far, the CDC has reported 13,915 deaths from the Swine Flu (data as of 12/09/2009, CDC.gov).  But consider this: In the summer of 1918 – only 92 years ago, the “Spanish Lady” flu swept through the world, killing 22 Million people across the globe. 22 Million people! From the flu!  One half of all of Philadelphia died!  One half of a US major metropolitan city wiped out from an illness!  The Spanish Lady killed 6 million more people than all of World War I!

Today – we text, e-mail, and call each other using cell phones anywhere around the globe.  We are frustrated whenever our e-mail doesn’t work, someone doesn’t return our text immediately, or we have to leave a “voice mail.”  Yet only 20 years ago – no one had cell phones, e-mail was brand new – and it was customary to handwrite letters which may (or may not) even reach our pen pal within weeks of sending them.  In 2010 the number one source of internet access will be… you guessed it… a cell phone which has ten thousand times more computing power than the entire world had in 1960!

Today – we can order a pizza online and have it delivered to our home in 30 minutes or less.  We shop online and are frustrated when it takes longer than 3 days to get our package or we have to pay for shipping.  Yet only 20 years ago, it was commonplace to order from the fall or spring Sears catalog, add money for shipping and handling, and wait up to 6 weeks for delivery – which was in the store and you had to go and pick it up anyway. Which I remember vividly from my childhood, by the way.

Here are some interesting bullet facts:

  • It took 38 years for radio to reach 50 Million people.  It took TV 13 years.  Facebook, however, added 100 Million users in 9 months!  If it were a country, Facebook would be the 4th largest country in the world!  For more info on that, check out this link: http://www.youtube.com/watch?v=sIFYPQjYhv8 ·
  • Cars are being developed now that, once on the highway, will drive themselves in convoys with other cars.  Time to take a nap… on a long road trip! 
  • Thought controlled robotics have been invented, and initial uses are now under development.  Think of the applications for the handicapped!
  • In June of 2007, a patient successfully received a whole organ transplant – grown using her own stem cells and without the need for anti-rejection drugs. Can you IMAGINE the medical implications of this in 20 years?!?
  • Nerve controlled bionic arms and legs are now in prototype stage. Remember the $6 Million Dollar man? From the looks of it, it appears that he’s about 10 years away!  http://www.youtube.com/watch?v=T6R5bm6qx2E
  • More video was uploaded to YouTube in the last 2 months – than NBC, ABC, and CBS have aired – since 1948! Collectively, the networks have been around over 200 years.  YouTube didn’t even exist 6 years ago.  The world is changing with incredible speed.  And finally – take a look at this video.  It truly is an example of the speed with which the world is changing. http://www.youtube.com/watch?v=6ILQrUrEWe8

Now what does this have to do with Wealth Management? Global wealth is primarily created through capitalism – where new ideas and products are capitalized by investors.   Many innovations come out of necessity – after recessions, when people turn to themselves for support, create new businesses and generate new ideas because their old paradigms failed to provide them what they needed.  Historically, the periods after recessions have been tremendously profitable ones.  Remember the 80’s boom after the recession of the 70’s?  Remember the 90’s boom after the recessions of ’91 – ’93?  We are now finishing up one of the worst recessions in a long, long time.  As the “Great Recession” winds down, I can only imagine the wonders that await us! 

Happy New Year, everyone! Hang on – I believe it will be a wild, wild ride!! 1 IBM Global Technology Services. “The Toxic Terabyte – How data-dumping threatens business efficiency.” July 2006

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by PARAGON Wealth Strategies, LLC, a registered investment advisor. 

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093





What Health Care Debate?

11 11 2009

Mike Carignan, CRPC®by Mike Carignan, CRPC

Recently, if you’ve been watching any form of the news, you’ve seen the ongoing debate over health care reform.  Now, I am not about to comment on which side is right or wrong, because with this debate it’s not just right or left…it seems to be a full perimeter. Even the individual parties can’t seem to agree amongst themselves.

Now, however, with the passage of the health care reform bill this last weekend many people are thinking that health care insurance isn’t going to be a concern in the future. “Now I’ll be able to get coverage regardless of previous conditions or employment status,” some may be thinking. That may be the case in the future, but not yet.

My point is going to be much simpler than the overall healthcare debate. I am addressing the here and now and one of the biggest health care concerns if you are thinking about retiring early. MAKE SURE YOU HAVE HEALTH CARE INSURANCE!

I hope that was clear enough.

We see clients, frequently, that have put a great deal of thought into where they will spend their retirement, how much money they’ll need for the vacations or the second home, but don’t plan for where they will get health insurance. Many clients take for granted the ability to qualify for individual health insurance, especially if they have been working for a large corporation with group benefits.

Some clients have the ability to continue their health care insurance benefits after leaving a long-term employer, but more often we see a need for individual health care coverage if they are retiring earlier than age 63 1/2. What questions then need to be answered if you are thinking about retiring early?

1. Will I be able to continue my group health care coverage?

2. If not, then will I get coverage from a private insurer? (We often suggest clients to go through underwriting before actually retiring to make sure.)

3. How much will it cost until Medicare?

4. Does that cost affect when I can start my retirement?

If you haven’t answered these questions then you are taking a HUGE risk in retiring before you have covered this significant risk factor of a secure retirement. Planning ahead for the potential risks in retirement is the best way to live a stress free and happy retirement.

 

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by PARAGON Wealth Strategies, LLC, a registered investment advisor. 

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093





A drop in the market?

31 08 2009

CastleInternetPhotoTiniest

By Jon Castle, CFP®, ChFC®

Well, it appears that the market euphoria that has driven the major stock indices is about to end for a while.  Not that anyone can foresee the future with any accuracy, but it sort of… feels like the market needs to take a bit of a breather.  After about 15 years or so of managing money and surfing the ebbs and flows of the market, you sort of get a feel for it, I suppose.

Actually, a correction at this point makes sense.  The S&P 500 index had a good run from early July – 167 points from the start of its run at 872 and then finishing up with a high of 1039 last week.  A 19% sprint in only 6 weeks or so makes for a good pausing point here as kids go back to school and Labor Day is just around the corner.

It wouldn’t surprise me a bit if the market didn’t bleed off about 10% or so over the next several weeks… from looking at the charts, it seems like a nice place for it to rest would be about 950 on the S&P – or about 8750 or so on the DOW – by the end of September or early October.  That would put it within a few weeks of being ready for a nice Santa Clause rally into December and maybe even January.

Not that it matters much for sensible investors, though.  Historically, markets trend generally upwards coming out of the latter part of a recession, so the fact that the markets give returns in spurts and lumps is just part of the game.   At this point, we’ve recommended that portfolios be repositioned back to the investor’s natural risk tolerance – a core baseline, if you will.  With a little overweights here and there to take advantage of a cyclical recovery, of course.

Now to control the emotions as the market corrects a bit… that’s always the hard part.  But at least Labor Day means a three-day weekend!

I wonder if we can rename “Labor Day” into “Golf Day?”

 

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services provided by PARAGON Wealth Strategies, LLC, a registered investment advisor. 

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093

www.WealthGuards.com