ouchIt never feels good when the stock market heads south, and that’s what happened last week. The Standard & Poor’s 500 Index (S&P 500), Dow Jones Industrial Average, and Nasdaq Composite all moved into correction territory, which means the indices have fallen 10 percent or more from their previous peaks.

If you look at corporate earnings, the decline in U.S. stock values may seem a bit of a head scratcher. During the third quarter of 2018, almost four-fifths (78 percent) of companies in the S&P 500 were more profitable than analysts expected, according to FactSet Insight. Earnings grew by 25.9 percent – the fastest growth rate since 2010.

When you remember the stock market is a leading indicator, the mystery is resolved. Share prices reflect what investors expect will happen in the future, and third quarter earnings are in the past.

So, what moved the market last week? Investors’ concerns included slowing global economic growth. Dave Shellock of Financial Times reported:

“World equities closed out the week on a soft note as disappointing economic reports out of China and the eurozone heightened concern over the outlook for global growth…the big focus was on China, where activity and spending data confirmed that the country’s economy had a dismal November.”

Monetary policy and geopolitical issues, including the possibility of a U.S. government shutdown and ongoing Brexit follies, contributed to investor pessimism. The American Association of Individual Investors Sentiment Survey showed a 17-point decline in bullish sentiment and an 18.4-point increase in bearish sentiment.

When stock markets leave you feeling like Santa dropped coal in your stocking, it may be helpful to remember the words of Warren Buffett, “Be fearful when others are greedy and greedy when others are fearful.”

screenshot 12.20.18

* These are the general views of Jonathan DeYoe and they should not be construed as investment advice for any individual.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

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* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* The original “Weekly Commentary” was prepared by Carson Group Coaching. Jonathan DeYoe is a member of Carson Group Coaching and adds, subtracts and edits before publishing.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

* “Ouch!”

Sources:

https://finance.yahoo.com/news/u-stock-market-officially-correction-001801781.html
https://www.investopedia.com/terms/c/correction.asp
https://insight.factset.com/earnings-insight-q318-by-the-numbers-infographic
https://www.investopedia.com/articles/economics/08/leading-economic-indicators.asp
https://www.ft.com/content/cb5ddff4-ff45-11e8-ac00-57a2a826423e (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-17-18_FinancialTimes-Stocks_Sink_as_Global_Growth_Worries_Intensify-Footnote_5.pdf)
https://www.ft.com/content/1d218d08-ffb5-11e8-aebf-99e208d3e521 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-17-18_FinancialTimes-Week_Ahead-Fed_BoE_US_Government_Shutdown-Footnote_6.pdf)
https://www.aaii.com/sentimentsurvey
https://www.goodreads.com/quotes/29255-be-fearful-when-others-are-greedy-and-greedy-when-others