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No fireworks have been emanating from Wall Street lately as the major averages have been stuck in a tight trading range. This market is going nowhere fast and investors are getting frustrated. “Hurry up and wait” seems to be the order of the trading day over the past couple of months. For example, on May 6th, 2009, the Standard & Poors 500 which represents the largest 500 stocks domiciled in the United States closed at 919.53. Amazingly, at the end of June the S&P 500 closed at 919.32, 21/100 or 0.02% below its close nearly two months prior.
Furthermore, over this period of time the closing high on the S&P 500 was 946.21 or 2.90% above the May 6th close while the closing low on the S&P 500 was 883.92 or 3.87% below the May 6th closing level. This pales in comparison to the daily five percent moves from high to low that investors experienced during the Fall (pardon the pun) of 2008.
As noted above, the volatility during the Fall of 2008 as well as during this past March bought nausea to the investment community forcing many investors, who could no longer stand the emotional rollercoaster, to sell at or near the bottom. It is still quite fresh in our memories how the mortgage and financial services crisis brought the stock market and nearly our economy to its knees. We consider the current meandering nature of the stock market a perfect opportunity for investors to properly position their portfolios to match their investment objectives. We consider it a perfect opportunity for investors to analyze their mutual fund holdings, to analyze their balance sheet, their net worth statement and their tolerance to risk.
In addition to the above, our advice to investors is to stay patient or perhaps buy on dips. This past Thursday was a perfect opportunity to add a little to your mutual funds or individual holdings. The weak Payroll Report released that morning sent stocks down approximately 2.50% as “weak hands” sold. To us, this Payroll Report was not surprising one bit. The labor market is a lagging indicator as employers layoff employees as a last resort, but once having done so, are reluctant to begin hiring.
We have stated publicly for the bulk of the past two months that the stock market was due for a consolidation of its gains off the March 9th close of 676.53 and believe that this consolidation may very well last through the remainder of the summer months. However, we also realize that tight trading ranges historically end with dramatic moves one way or another. The longer the current impasse continues, the stronger, more violent the more will be.
THE BOTTOM LINE – We encourage investors to remain appropriately invested according to their objectives as stocks consolidate their recent gains. However, we do believe that as the federal stimulus money actually filters down to the economy, most likely during the latter part of the third quarter, stocks will break through to the upside. However, we must be ready for a bit more pain prior to those gains. Visit our website at faganasset.com for daily market/strategy updates.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.