Jan 09

The Market Today 1/8/16: Crash


This weeks sell off sure feel’s like a crash, doesn’t it? No doubt, this weeks 6% draw down was a bitter pill to swallow. It has the appearance that all hope is lost, and the stock market will never move up again! For a few brief fleeting moments, I had those thoughts also. Once I removed the emotions from my system, I realized that all is ok. While I am not happy with this move, and I know that clients and other investors are bothered and frustrated, but this will pass! Look back just a few months ago, in August and September. The sell off then was worse than the current one is. I feel the market could retest the low’s we saw in September. What did the markets do from that low? They rebounded sharply! They will again this time. Now I am sure your next question will be when? I wish my crystal ball was working, and I could give you an exact answer. The problem is, that crystal ball is in the repair shop, and no longer working. That being said, what I can tell you is, due to China, due to the overall investor sentiment being as negative I have seen since the financial crisis, this has the recipe of a rebound. This weeks sell off was started with the much more violent sell off in China, and their currency devaluation. Just remember, we are not in 2008, when the mortgage market was the reason the market lost 40% of it’s value, this is simply a correction. Which is healthy for the long term. Not easy to go through, but we have to remember, and not let our emotions get the best of us, and do something which we know will would regret real soon.

Crash: Stocks

Will the market crash in 2016? While it certainly feel’s like it, I hardly think so. The situation in China is bad, but certainly is not as bad as the mortgage issue here was in 2008. Remember, the Chinese market was up well over 100%, mostly due to high leverage. Chinese investors were trading on margin. The Chinese market now, looks very similar to our market in the late 1920’s. Now we see the ramifications of leverage when the market moves against you. Selling only brings on more selling. We do not have that problem here in the US, or in any other part of the Developed markets. We briefly discussed the reasons for the market moving lower, let me tell you some reasons why I feel it will bounce soon, and move back higher. First, they always do. Even in the depression, and again during the financial crisis, the market rebounded. Generally, when investor sentiment is as low as it is right now, that signals a bottom. Look at the chart above!! Look at the four yellow circles that I drew on the chart. We are now in the fourth circle. In the previous three, what did these yellow circles show? A deeply oversold market, that rebounded. Right now, the market is very oversold. I expect the market to do the same, as it has done the three previous time….rebound higher!!

Crash: Bonds

Courtesy of the “crash” in stocks, the bond market has been rallying! This is what happens when stocks melt down, that money goes into the bond market. Which is the reason the bond market rallied this week. The interest rates however, have not broken support on a closing basis, so I do not feel, at least right now, that we are looking at a severe downturn from these levels. I would get real concerned if the interest rate on the key 10 year treasury broke back under 2%

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information, and expert advice on portfolio construction, and helping client’s navigate through a crash like market!

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