The Market is an Anomaly – Bad Economic News Doesn’t Equal Decline

During July, economic news contained a list of bad news.  Some of the items are listed below:

  •       Unemployment continues at record levels
  •       GDP growth has slowed in the second quarter from 3.7% in the first quarter to 2.4% in the second.
  •       Fears of a double dip recession continue.
  •       Consumer confidence continues to be low.

This is a partial list of perhaps a dozen set of bad statistics so logically the markets would go down.  In July, during all of this news, the markets actually went up about 7%.  On a short term basis the markets are not logical and at this time it is very difficult to determine the direction.  The bad news continues into August and the markets have declined by almost 2.5%.  One analyst speaks on CNBC and says that we are going to have a double dip recession, then another analyst says that we are not.  There is no trend.  This feels like riding the roller coaster at six flags, the ups and downs make your stomach fly up into your throat.  You ride it from the beginning to the end, with ups (euphoria) and downs (fear) along the way and you end up in the same place that you started.  Then you get back on.

The S&P 500 begins the year at 1,115, goes up to 1,217 on April 23rd, then declines to 1,022 on July 2nd, then goes back up to 1,127 on August 9th and now stands at 1.075.  This is a real roller coaster ride and so far we are approximately 3.5% below where we started.

There is no trend so what do you do?  We continue to be mostly invested with some cash on the sidelines.  We remain invested because if the markets go up we want to participate but if the markets go down we want to have opportunities to buy at lower prices.  It appears that both ups and downs will occur so we will have the opportunities and hopefully the economy will gradually recover and the trend will eventually be up.  Meanwhile we remain cautious hold on to stocks of companies that we believe in and we keep some cash.

For additional information contact Richard Taylor.

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