Sorry for the delay in putting out an article about the choppy ride of the recent downward turn in the market over the last few weeks but I wanted to be sure that I had a handle on the situation. I needed to get a very firm grasp on it. Is a Bear market at our door?
During the day today the Dow Jones Average was down over 500 points. While it recovered to -137 it is still down over -1400 points in the last 2 weeks and has not recovered from the previous downturn. At the height of the downturn the Dow was at a low of $23,881.37 today; which means off of it's high for the year of $26,951.81 on October 3, 2018 or a loss of $3,070,44 in less than 2 months; that's a drop of 8.8%! The loss for the Dow for the entire year which began at $24,423.26 would be a loss of 0.02% is this significant you betcha!
Since this blog is for the novice investor I want to show how this would relate to your own savings account by giving an example so you can view the overall picture of what is really going on for the year as a whole. In January 1, 2018 you open a savings account at your local bank for $244.23 and decide you are going to make weekly payments from you paycheck every week of about $0.75 So give or take earning a little interest on October 3rd your account says your balance is $269.51 you are making progress and then on December 10th the bank charges you a $31.00 bank fee for servicing the account bringing your total to $238.51 so you lost $5.72 from where you started. All of your work for that income of the $31.00 you lost! Turns out the savings account was a bad investment in the short term. However the stock market had the potential of giving you no $31.00 fee and at this point in time could have been at $280 by our example. This is why it takes time to build a portfolio and is not a short term get rich quick proposition you need to have 5-10 years to make your investments pay off like those chosen in our portfolio which have been hard hit in this downturn but I am mot worried.
William, you still didn't tell us why the market is doing this wasn't that the point of the article?
You can get an explanation about the downturn from any financial website and other blogs, this blog is not always about my opinion and the causes of the downturn but to teach you how to look at the overall market and relate to what is going on. Yes I give my opinion and perspective based upon the market as I see it.
The real answer to your question is: "I do not know" traditionally after the loss of an election to the opposition party in the house you get what is known as a Santa Claus rally in which stocks go higher for the year due to a lame duck Congress. That is not happening this year. Thank Mr. Trump and his lack of experience in understanding the tariffs, our trade agreements, and economics as a whole. Funny how a party supposedly good with money and economics puts in charge a man with three bankruptcies?
The global whispers are uncertain about the largest economy in the world and the second largest economy in the world clashing over tariffs along with financial problems in Europe with Italy and Brexit. Continued conflict with Russia moving in on the Ukraine and fervor with NATO countries over missiles (I would like to note that US Defense contractors were big winners today with Northrup Gruman and Lockhead Martin being the top gainer and 3rd highest gainer respectively).
China banning Apple sales of the Iphone in China and an overall slowing of the wold economy at the same time the Federal Reserve is playing around with interest rates. The Mueller investigation and the upcoming constitutional crisis the United States will face. I have spoken of the VIX the volatility index previously is at a real high level around 24.89 (although back to 22 at moment) that is a measure of fears in the marketplace.
While you have a man in the White House that is unpredictable with such close ties to Russia and what might happen in the Ukraine it really is an incredible time to be learning and watching what is going on in the market and why as a beginner you need to keep yourself "Out of the Drama" like you do when you watch your friends fight and they want you to take sides. Best to stay out of it all and keep your money in safe investments that have proven a track record of markets like this.
Is a Bear coming? Really hard to say although some signs are pointing to it. The S&P 50 day moving average has dipped below the 200 day moving average. Bond market drop on the 10 year treasury interest rate and other technical charts are beginning to show signs of the Bear; yet most Analysts still disagree at the time of this writing. I have to say I really think the Bear market is a head in 2019 but not sure how long it will last. Really depends on if corporations are going to continue to try to buyback shares to boost the market or not.
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