Selling Stampede

With the Dow Jones Industrial Average closing at approximately 15,600 yesterday, January 20th, down -10% from its January 1, 2016 start of 17,400, we are in correction territory for 2016 (defined as a drop of -10% or more). Of course, diversified portfolios that include risk management are generally down quite a bit less than this.

Today, we thought you might value Jeff Saut’s comments (Raymond James Investment Strategist). Here is one paragraph from his missive:

“Therefore, today we enter session 15 of the ‘selling stampede’ with the typical stampede lasting 17 - 25 sessions. The equity markets are massively oversold by just about any metric you care to use: at yesterday's lows the S&P 500 (SPX/1859.33) was trading at a forward P/E of 14.6x based on the S&P's bottom up, operating, and earnings estimate ($124.14). Goldman Sachs is telling investors to ‘buy’ crude oil. And the tree that fell in the forest, which nobody heard except eagle-eyed Eric Kaufman at VE Capital, was an energy-centric exchange traded note (ETN) that is being closed down. The headline read, "UBS Announces Mandatory Redemption of ETRACS 2xMonthly Leveraged Long ETN Linked to the Alerian MLP Infrastructure Index Due July 9, 2040." And that, my friends, is the kind of headline you see at capitulation lows!”

When strategists like Jeff indicate that markets are massively oversold, we generally see markets rebound, often over time. The U.S. economy remains reasonably healthy, and while the drop in oil prices is a shock on an immediate basis, it also has the mid and long-term benefit of fostering economic growth (along with the contribution of renewable energy).

Please let us know any and all questions. We are always happy to hear from you.

Laura Kuntz