An interesting couple weeks

Posted by on Dec 22, 2014

Let’s see if I have this straight.

On Friday 5 Dec, the S&P and the Dow had just set new all-time closing highs. Then, by Friday the 12th, both the Dow and S&P had completed their worst single week performances in a couple years. This past Friday, following the biggest two day rally for the market since 2011, we’ve now moved back to having the Dow within about 150 points from its all-time high. The S&P closed at 2070…the closing high is 2075. In other words, not a whole lot of overall change in those two weeks.

Doesn’t seem as scary – or newsworthy – when you take out the emotion like this, does it?

The decision by the Fed to be patient about beginning to raise interest rates having provided the market a nice holiday gift of that not happening any sooner than thought provided the catalyst that turned the markets on Wednesday. We also got a big slug of money coming into the markets from Europe during midweek.

Everyone’s a long-term investor until…

Usually, it’s until we get a series of market-induced whipsaw sessions and all the good intentions and strategies set in less confused circumstances get ignored. A major cause of this ignorance are all the headlines that come flying from everywhere, serving only to confuse and scare all the nice people.

Here are a couple examples that Josh Brown found from June when the oil price was topping and the doomsayers were all blaming a not so good market on those high prices.

Reuters declared that, “Oil prices jump on Iraq anxiety, stocks fall”. CNNMoney had “Oil prices up, stocks down.” That type commentary was everywhere – not exactly confidence building for most investors.

Fast forward to two weeks ago…a time where, according to the Energy Information Administration, oil prices are down about 50% from when the preceding headlines were created. As a result, they add, this has US households on track to spend the least amount on gasoline in 11 years!

With (in spite of?) those facts, the headline writer at CNNMoney determined that, “Tumbling oil could take thousands of jobs with it.” Bloomberg offered, “Oil freefall gives Dow worst week since 2011”.

So, oil going up in June equals stocks being down. And…apparently as a result of oil dropping so much, stocks are going down. No wonder people are confused with “news” like this.

As Jack Bogle, emperor of Vanguard, chooses to advise, “If you’re going to jump in and out of anything on a moment’s notice, you will be badly defeated. That’s a speculative strategy.”

Why so volatile lately?

In addition to the usual year-end fund manager profit-taking and tax-loss selling, what we’ve been seeing in the stock market has been due in great part to the post-Thanksgiving determination by the Saudis that the price of crude oil would no longer be in direct control of OPEC.

That decision was neither expected nor anticipated by the global markets. Markets really don’t like uncertainty. The ripple effects of the uncertainties that an oil price driven by global supply and demand have created are what have stirred the markets so significantly.

The challenge has been that, if there was no real or implied support for a predictable dollar amount per barrel of oil, what the heck is it “really” worth? I believe that the market will find relative equilibrium soon. Whether the price is an advantage to a country or company or not will be better able to be decided and the volatility waves will then begin to settle – though not disappear…simply due to the reduction of uncertainty.

Forgot to mention one other thing that happened this past week. US crude oil traded to its lowest point in five and a half years before rallying up to end the week within just about a dollar of where it closed a week ago. This may indicate that the oil price may soon be settling into its new trading range.


Don’t ever rely on headlines for your investment advice. And never, ever act based on them alone. Do your homework. These little market tsunamis show up pretty regularly during any year so, while they may not roll through as quickly as this one seems to have, you’ll likely be better off just rolling along with the waves.

If there’s one thing I’ve learned in my 40 plus years in these investment trenches is that, regardless of the current overall trend of a market, we will always have good and bad times. Trying to do a short-term investment reaction to whatever has almost never worked to the benefit of the investor.

Have a most Merry Christmas!
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