foxex: FLATTENED!

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's headlines

1. Sell-off intensifies wiping out all 2018 gains

2. Chart of the Day: Gold vs Stocks: Which is the real winner

Markets Close

Dow
24,465.64 -2.21%

S&P
2,641.89 -1.82%

Nasdaq
6,908.82 -1.70%

VIX
22.48 +11.84%

INV Anxiety Index
101.34 +0.00%

US 10-Yr Yield
3.061% -0.28%

Flattened!

It's official. All market gains have been wiped out for the year. The constant drumbeat of selling has reached a fever pitch and it's the only noise we can hear. For experienced investors, this is as natural as the changing of the seasons. For new investors, this can be a strange and painful experience. For savvy investors, the past few months have been a great time to rebalance, get defensive and wait for the next buying opportunities. They will come, but they are not here yet.

There has been no one reason for the intensity of the sell-off. There are plenty of reasons why it began, and we have covered them pretty extensively:

Rising interest rates
Overvalued stocks
The threat of a trade war
Political instability in the U.S. and abroad
Slowing global growth
Over-crowded trades, especially in tech stocks
More sellers than buyers (My favorite)

This is what the S&P 500 looks like so far this year:

Given the steep losses of late, it is remarkable that we are flat for the year. Predictions for the rest of the year and 2019 are all over the place, but the prevailing sentiment is that stocks will remain under pressure (for all the reasons listed above), economic growth will slow and we may very well experience a bear market and a recession. Keep in mind, bear markets don't cause recessions, and vice-versa, but they have coincided about 60 percent of the time going back 40 years, according to LPL Financial:

Why it Matters: Unless you are a perma-bear and prefer that markets and stocks will fall so you can make money selling short or buying options, a correction or bear market is not what you signed up for when you put your money to work. We've been in this prolonged bull market so long, many of us forgot how to establish rules to govern how we invest, risk management practices and a diversification strategy. Simply setting up your retirement account and selecting the mutual funds or ETFs to funnel your contributions into every month only works when everything goes up. We know now that they don't. A good financial advisor can help you do that and we recommend that everyone should use one. But, even if you don't, at least teach yourselves the basics and apply the rules to your portfolio.

This is what we do and here are some links to help you get started:

What's Next: Global markets are open for business tomorrow, then closed for Thanksgiving on Thursday. In the U.S., markets will close at 1PM ET on Friday. There is nothing telling us that the sell-off will abate anytime soon. We can't predict the future, but we can smell the sentiment, and it is foul. We see it in the hundreds of research reports we read every week. Most institutions have already made their moves, rotating money out of tech and into value stocks and healthcare.

Rotating in and out of sectors may not be something you are comfortable with. But balancing your portfolio so you are not too exposed to stocks is something you should be able to handle. This is not the time to try to pick the next winners. It is time, and has been for awhile, to wake up and come to terms with the fact that the market we rode for the past 10 years is fading into the sunset.

Other Headlines:

Morgan Stanley: The Worst is yet to come for Stocks

Marijuana sales open for business in Mass.

Every FAANG Stock in a Bear Market

Why Homebuilder Stocks may Rebound

Chart of the Day: Gold vs stocks - which is the real winner?
Charlie Bilello of Pension Partners posted a simple chart comparing gold and S&P 500 returns that we thought was striking. On the chart (shown below), Bilello shows that the total returns for gold and the SPY (S&P 500) ETF in the last 21 years have now ended up roughly the same. Of course, gold and SPY took very different paths to get where they are today. But the end results, at least in terms of total returns, have apparently converged.

Within these two decades, SPY has followed a relatively orderly line to the upside, with the exception of sharp pullbacks in 2000-2002 and 2007-2009. Gold, in contrast, traveled a much more volatile route that consisted of a steep, extended rise from around 2003 to 2011, followed by an extended slide and consolidation since then.

So what can we possibly learn from this? Well, the gold trade has fallen far out of favor for the past several years as the price of gold has dropped sharply from its heyday. But when viewed from a very long-term perspective, gold investors have done about as well as stock market investors. This may be one reason to reconsider gold-based investments as one part of a diversified portfolio.