Jan. 20–There are things in the world to worry about, said Hutchinson investment advisor Michael Armour, “and it appears investors to have let fear settle in a little bit.”
With the U.S. stock market plunging Wednesday to levels not seen since the fall of 2014, before partially recovering by the end of the trading day, it is a scary time for people with money in the market.
It is also a good time, however, Armour said, if you have money to invest, to get in.
“We tested the August low, but bounced off them,” said Armour, of Financial Planning and Consulting Services LLC in Hutchinson, about the roller coaster day on Wall Street. “It bounced quite a bit. It was down 3 percent, but ended the day down just 1 percent.”
The DOW fell more than 550 points by early afternoon, but closed down 249 points, or 1.56 percent, while the S&P lost 22 points, or 1.17 percent and the NASDAQ was minus 5.26 points or 0.12 percent
At the day’s low point, the number of stocks hitting new lows on the New York Stock Exchange surpassed the Aug. 8, 2011, total of 1,345, marking the largest number of new lows since Nov. 20, 2008, Reuters reported.
The market is in “correction territory,” he said, having dropped more than 10 percent over the past several months.
“It’s not just a dip. It’s certainly not a bear market, but we are hearing maybe we’re headed to that,” Armour said. “It’s not out of the realm. The market’s up 150 percent from the low of 2009, so it’s definitely long in the tooth; bull markets don’t last this long.”
“I do think it will continue to slide, another 10 or 15 percent, probably,” he said. “But you can’t predict when the turnaround point will be.”
He has been advising his clients for some time, Armour said, to be “de-risking,” putting more in cash or more stable, lower-risk investments. Now, he said, he is telling them to start buying.
“We’ve been trying to get them off the treadmill,” he said. “Staying this late in a bull market will usually lead to losses… I’ve had 40 percent of my cash in retirement accounts for three years. I felt the market was overvalued.”
“Now I’ve got a lot of clients, and me personally, who are putting that capital back to work,” he said, buying stocks that are undervalued. “It’s a stronger position to be in. When people are losing money and you ask them to take more risk, they are not going to do that. But if they’re sitting on cash and thinking more clearly, you’re seeing good values and want to buy.”
Most of those new investments, he said, are in foreign stocks.
“They seem to be a better value than the U.S. market,” he said. “They’ve fallen more. If taken from their peak, using the MSCI World Index, which is all the world excluding the U.S., they’re down 156 percent. If Wal-Mart had chips more on sale than Target, you buy at Wal-Mart. This is one of the few industries that when things go on sale, people don’t want to buy. They want to wait for the sale to be over to buy.”
If already in the market, however, now is not the time to get out, despite the expected continued volatility, both Armour and advisor Jay Pitzer, of Strategic Financial Concepts, advised.
“I talk to a lot of farmers and they get it real quick,” Armour said. “I tell them, you haven’t lost the wheat if you haven’t sold the wheat. You still own the grain in the bin. Keep it in storage until the price goes back up. You still own the stock. You haven’t lost unless you actually sell it. It is not just a piece of paper. You have ownership in those companies.”
It never hurts, Pitzer said, to have an investment portfolio reviewed, “to see if it’s too aggressive for where you are in life.”
“Normally, if you’re going to make changes, however, you don’t want to make them in the middle of a correction,” he said. “You want things to level out and then re-evaluate.”
He has been through many market corrections in 30 years, Pitzer said, and “you have to be rational when looking at a portfolio. Don’t make an emotional decision.”
“Don’t expect 2016 to be a banner year,” Armour said. “I think volatility will be the name of the game. The Fed doesn’t have any ammo. They barely raised interest rates, so they can go down a bit, or offer QE4, but there are no long-term solutions. This is a normal correction, a good correction. We need to have this happen from time to time to re-evaluate risk and the levels of risk we’re taking.”
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