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Sept. 9 was the day the mood flipped. Friday's dramatic selloff broke the longest streak in more than 40 years without the indices moving 1% or more in either direction on a daily basis.
The Dow Jones Industrial Average, Standard & Poor's 500 and Nasdaq dropped more than 2% each, in unison with pretty much all the rest of the world’s bourses. There was no specific news to account for the retreats. Talk of the Federal Reserve Board tightening before year end was the presumed trigger.
Of course, the fact that the markets reacted so badly to the idea makes its implementation even less likely than before.
The headline shown below was typical of what we were bombarded with all day long.
The message, “Biggest Plunge Since June 24th,” implied it was time to get out as there was certainly much worse to come.
Media loves attention grabbing, click inducing and fear mongering. Readers should immediately have been asking themselves, “Was June 24 a good time to be selling stocks?”
We don’t need to guess at the answer. That post-Brexit panic lasted another day and a half before all three major indices turned on a dime, going on to set new all-time highs. Traders who sold into the initial selloff quickly suffered from sellers’ remorse.
Nobody can say if last week's action will mimic what took place in July and August. Why even bother trying to call the market? Just look for individual stocks that appear undervalued.
Longer term, the evidence clearly says “buying the dips” has been the right course of action.
Since March 9, 2009, when the current bull market was born, there have been 15 separate 5% or greater declines from high points on the S&P 500. Every one of those pullbacks ended with a new record high, rather than culminating in a 20% or greater bear market.
The closest call, toward hitting official bear-market terrritory, came in October 2011. SPY shares were off by more than 19%, presenting us with some of the best buying opportunities ever.
The list below shows 13 of my current holdings that appeared attractively priced as of the market’s Sept. 9 close. All are offered well below their 52-week highs. Ten of them pay decent yields while you wait for capital gains to unfold.
Dollar General (DG, Financial) and Norwegian Cruise Line Holdings (NCLH, Financial) have seen major insider buying interest in recent days.
After the CEO's purchase, Norwegian Cruise Line's executive vice president bought $430,800 worth of NCLH on Sept. 6 at an average cost of $35.90. For whatever it's worth, NCLH was up fractionally Friday as the DJIA dropped almost 400 points.
Fear of the Fed seems overblown. With America’s national debt approaching $20 trillion there is huge political pressure to keep rates permanently low. A return to the old normal, of 5% to 7% on short- to medium-term paper, would bust the budget simply due to debt-service expense.
That factor overweighs all the rhetoric Ben Bernanke and JanetYellen have been spewing since the crisis of 2008-2009. Actions speak louder and more believably than words.
Holding cash pays next to nothing and might even become a liability, if negative interest rates (NIRP) kick in here as they've already done in much of the world.
Quantitative Easing (QE) sounds fancy, but it really represents nothing but gradual dilution in the value of all existing fiat-based currencies. Holding the bulk of your net worth in a depreciating asset class is a bigger risk than temporary fluctuations in the value of good-quality shares.
Disclosure: Long shares of all the stocks mentioned above expecting Dollar General. Short put options on all the underlying shares on that same list.
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