Posted | by David Moenning |

My how the game has changed. Hand wringing has turned into teeth gnashing. Concern has turned into worry. And confidence has turned to out-and-out fear. All in 44 trading days. Yes fans, in a span of just over two months, the mood of this market has changed - completely.

We've gone from, it's all good and there is nothing to fear, to there is simply nothing good at all. And those market leaders that everyone was in love with? They are now under attack.

CNBC is producing special reports. The headlines use terms like "bear territory." And one article I saw yesterday was titled, "Stocks post worst start to April since the Great Depression." Seriously?

Some Perspective

I'm of the mind that for investors who have been in the game for several years, the market's latest hissy fit should be taken with a grain of salt. For example, over the last 5 calendar years (2013-2017), the S&P 500 has gained 107.41% (assuming dividends were reinvested and 87.46% on a price-only basis). Through Monday's, the S&P 500 index is down -3.43% (a bit less with dividends reinvested) so far in 2018. While this hasn't been much fun, I will add that if my calculator is correct, the cumulative returns still ain't too bad when viewed from a perspective longer than 44 trading days.

One of my long-time clients summed up the situation very nicely yesterday. During a phone call about a completely different subject, the stock market came up. Before I could launch into my view on the market he said, "Dave, I've made great money over the past few years. I see this kind of hysteria as just part of the game. So, just keep on doing what you are doing please."

For diversified investors, it is important to recognize that a portfolio of 60% S&P 500 and 40% Aggregate Bond index (commonly referred to as simply "60/40") would have gained a smidge less than 64% over the same time frame. As such, a pullback of couple percent or so this year probably isn't impacting anybody's retirement plans at this point in time.

Yet at the same time, the recent price action has been nothing short of U-G-L-Y. The S&P 500 has declined 12 of the last 15 days, falling by 7.35% in the process. And while I personally see the current move as a consolidation phase, the question on a lot of folks' minds is: What gives?

Of Trump, Trade, Technicals, and Tech

Cutting to the chase, we've had a very busy news cycle of late - and none of the headlines have been good.

For starters, after scoring big points with the investing public by getting tax reform done and reducing regulations, the White House has become a consistent source of angst for the market lately. The risk of government shut-downs. Tariffs and the potential for an all-out trade war (which I view as largely negotiation via the press). The border wall. Executive decisions. And now the attacks on biotech and tech darlings such as (NASDAQ: AMZN) (which is a stock that I, along with just about else everyone on the planet, own).

Then there is the burgeoning tech-wreck as the most beloved names such as Facebook (NYSE: FB), Google - err, Alphabet (NASDAQ: GOOGL), Netflix (NASDAQ: NFLX), et al, have been taking it on the chin lately. In fact, several big names dropped more than 5% yesterday alone. Are we having fun yet?

But as I told one advisor yesterday, pullbacks in the high-fliers are to be expected. And a corrective phase that produces a decline of 20% or more in the market darlings is pretty standard fare. However, after the run stocks have enjoyed since November 2016, the current dance to the downside probably "feels" worse that it might have in years past.

Finally, there is the technical picture. The bottom line here is the S&P went through its 200-day moving average like a hot knife through butter yesterday morning. And while a decent rally into the close put the index back to within a stone's throw of the 2589 level, technicians point out that the venerable index did close below the all-important line in the sand for the first time since mid-2016.

The key here is that many analysts view the 200-day as the Holy Grail of technical indicators. If price is above the 200-day, it's a bull market. If below, well, you get the idea.

My Take

From my perch, I believe we are seeing an overdue corrective/consolidation phase that is being driven by headlines and fueled by high-speed trading. And as I opined recently, it is important to remember that good news can also occur once in a while and that this too shall pass.

So, unless my big-picture market models start to crack, I'm going to hold off on hitting the panic button. Well, for now, anyway.

Thought For The Day:

Success is not permanent & failure is not fatal. -Mike Ditka

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

HCR Focuses on a Risk-Managed Approach to Investing
Must Read: What Risk Management Can and Cannot Do

HCR's Financial Advisor Services

HCR's Individual Investor Services

Questions, comments, or ideas? Contact Us

At the time of publication, Mr. Moenning held long positions in the following securities mentioned: AMZN, GOOGL - Note that positions may change at any time.


The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

Mr. Moenning may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.