foxex: Sprinting to the Finish

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. Stocks post first positive week in four with one day to go

Markets Close

Dow
23,062.40 -0.33%

S&P
2,485.74 -0.12%

Nasdaq
6,584.52 +0.08%

VIX
28.3 -5.54%

INV Anxiety Index
106.14 High Anxiety

US 10-Yr Yield
2.736 -0.26%

If you took the week off, good for you. You're not feeling the whiplash the rest of us are given the extreme volatility in the stock market. You are probably better off for it anyway, and your portfolio may even look a little healthier as 2018 comes to a close assuming you've remained invested in equities. Many people didn't. According to Lipper, more than $80 billion came out of individual stocks, stock ETFs and stock mutual funds from December 5 - 19th, the largest amount on record.

Timing is everything, as they say... and we rarely win when we try to time the market.

Cashing out seemed like a reasonable thing to do all the way through Christmas Eve. On December 26th, the DJIA posted its biggest point increase in history, jumping 1086 points. On the 27th, stocks pulled an 800 point turnaround at the drop of a hat, and closed up 2 percent after facing a steep selloff in the morning. The DJIA and S&P 500 fell in today's session, but it's worth looking at the scorecard for the week and the year with one trading day to go in 2018.

This Week:

DJIA: 5.9%

S&P 500: +5.7%

Nasdaq: +6%

Russell 2000: +5.4%

10 Year US Treasury: -0.65%

Year to Date:

DJIA: -8%

S&P 500: -7%

Nasdaq: -6.8%

Russell 2000: -12.9%

10 Year US Treasury: +13.7%

We did get the Santa Claus rally we were hoping for, and then some. But, if you think we are out of the storm, you better keep your hat and gloves on. 5 percent rallies, like the one we saw on December 26th, are not indicative of a healthy stock market. We didn't see any of those in 2017 and 2018 as the market churned to record after record. Extreme days, when stocks rise or fall 3 percent or more, are classic examples of highly volatile markets that are largely driven by algorithms and large institutions which can generate multi-billion dollar orders in fractions of a second.

Kenny Polcari, a 30 year veteran floor broker on the NYSE, puts it this way:

"...what I am saying is that this is a different place than it was even 1 yr ago…..the quants and techies – continue to try and 'outsmart' each other -claiming to have a 'better mousetrap' that somehow is faster and more stealth like and is able to deliver better results when trading…"

Why it Matters:

We can sit here and 'rage against the machine', but that would be futile, as the Borg says in Star Trek.

Individual investors can never beat the machines when it comes to trade execution and identifying trade imbalances. We shouldn't try. What we can do is have an investing plan for all seasons of the year, and for all the seasons of our lives. You can develop your own thorough research and education, or you can hire a financial advisor to help you create a plan. That's what they do.

What's Next:

With just a handful of hours remaining in the year, now's as good a time as any to assess your portfolio and make sure you have the right allocation in place going into the new year. There are so many uncertainties waiting for us in 2019 which makes asset allocation so challenging right now.

Case in point:

The U.S. Dollar seemed like the safest place to hide during the fall bloodbath. The tariff war was escalating, stocks were correcting and the bond market was inverting. The Dollar was the strongest guy in the gym. But over the past two weeks, the greenback is showing signs of weakness, as pointed out by our pal, JC Parets. Zoom in to see the time frames.

A strong dollar is great for U.S. tourists traveling abroad and currency traders looking for arbitrage opportunities. But it hurts U.S. companies that generate sales overseas, as you can imagine.

The point here is that leadership in the financial markets is a fickle thing. Look at the FAANG stocks in 2018. They were market leaders and pushed the indexes to new records. Every one of them fell into bear market territory over the past couple of months and took the indexes with them. Will the Dollar suffer the same fate? It's impossible to know. The only thing we know is that ok we don't know, so we need to create an investing strategy that doesn't lean too hard on any one asset class, individual stock, or security.

Let BALANCE be your mantra in 2019!