Market commentary by Joe Smalley, Accredited Investment Fiduciary®
“To everything there is a season.” Some of us recognize the lyrics of the Pete Seeger song. Others remember it from the book of Ecclesiastes in the Old Testament. And all Tigers fans had hoped that THIS was the season. With the lineup that the front office assembled, it seemed hard to believe that it was not. Indeed, the team from Detroit won their fourth straight AL Central crown, which earned them the right to play the Baltimore Orioles in the first round of the playoffs. Everything was going great, until it didn't. The weakest part of the team, the back end of the bullpen, collapsed. And not just in Game 1, but again in Game 2. In a best-of-five series, that was too big of a hole to climb out of, and our beloved Tigers just couldn't do it; they were swept in the first three games.
The takeaway: you are only as strong as your weakest link. And to find that out in October can be catastrophic.
Last year was a fairy tale story. The football program at Michigan State has been completely transformed by head coach Mark Dantonio. The attitude, discipline, and character of the team were rebuilt and if not for a couple of bad calls, the team would have played for the National Championship instead of playing in the Rose Bowl. With a returning quarterback and the stingiest defense in the country, this season looked to be even better. But in the Big Ten opener against Nebraska, the Spartans almost blew a 27-3 lead. The Cornhuskers scored 19 unanswered points to make a spectacular comeback. MSU was on the verge of a total collapse. Luckily the Spartans were able to get an interception in the last moments of the game and they snatched a victory out of the jaws of defeat.
The takeaway: if you take your eyes off the ball and become complacent, bad things can happen, especially in October.
Since March of 2009 when the Dow Jones Industrial Average hit a bottom of 6547, the world's best-known index has been on a tear. With the assistance of the Federal Reserve providing accommodative policies, the DJIA has gone up 10,000 points. While the economy has taken much longer than anyone thought it would to rebound, the unemployment rate has dropped, banks are lending, and consumer confidence has increased. Home values have bounced back and the stock market has gone up. But markets are cyclical and what goes up, will eventually come down - at least temporarily. It has been three years since the last 10% correction, which is a long time in the stock market. Since World War II, there have been 27 corrections, with an average correction lasting roughly three months. (Josh Brown has written a good article on this topic.) Simply put, we are overdue a correction and there are a handful of events (Ukraine, ISIS, the European economy) that could trigger one. And October has seen many of history's biggest stock market drops: the crash in 1929, Black Monday in 1987, and the recent financial crisis in 2008.
The takeaway: we are overdue a correction and October can be scary.
Not all doom and gloom
The good news is that even though the Tigers were shown an early exit from the playoffs, it looks as if they will be able to retain many of the same players from this season. They have the best starting pitchers in baseball and this single best hitter in the history of the game. Importantly, they now know their weaknesses and they can address them to get better.
The takeaway: learning from the past can help us improve and get better.
And even though they were tested mightily, the Spartans pulled out a victory against a very tough undefeated Nebraska team. With Alabama, Oklahoma, and Oregon all losing this past week, MSU has a legitimate chance of making the four-team playoffs if they can keep their eye on the ball and win out.
The takeaway: achieving our goals can get bumpy and test our resolve.
As for the stock market, we have had a good run. There is a saying on Wall Street, "no one ever went broke from taking a profit." Perhaps now is a good time to rebalance your portfolio. Keeping some cash on the sidelines to use when an opportunity presents itself is always a good idea. I am not a big believer in market timing, so I am NOT suggesting going all into cash, but having 10-20% available to buy on the dips might be wise. As always, I think diversification is the key. Plus, the October thing is mostly coincidence; going back to 1928 (to include the crash in 1929), the month of October has averaged a POSITIVE return, not a negative one.
The takeaway: use time and the market to your advantage.
Upcoming topics & events
Here are a couple of our upcoming commentary topics:
- Income Investing in a Low Interest Rate Environment
- Using Technology to Track Your Financial Life
Until then, remember, our Smalley Investments Open House is Thursday, October 23 from 3:00 - 7:00. Please join us if you can.
Disclosure: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks.
Joe Smalley is a financial advisor located at 213 East Saint Joseph, Lansing, Michigan, 48933. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 517.487.4850 or at www.smalleyinvestments.com.