The Super Bowl and Stocks

Investors and aspiring retirees alike should be rooting for the Carolina Panthers in the Super Bowl next weekend, and not because of quarterback Cam Newton’s electrifying play. It turns out there’s a correlation between the conference of the big game winner and the performance of the Dow Jones Industrial Average.
When the winner comes from the National Football Conference, the successor to the original National Football League, the Dow rises 11.4% on average that year. But when the victor is from the American Football Conference, rooted in the younger American Football League, it rises just 3.6%, according to LPL Financial. An NFC victory presages a positive year for the Dow 85% of the time; an AFC win has led to an up year 57% of the time. Carolina represents the NFC this year, while the Denver Broncos is the AFC team.

There have been some notable exceptions to the rule. The New York Giants defeated the AFC’s New England Patriots in 2008, the year the Dow crashed and ended down 34%. And in 2013, when the Dow shot 26% higher, the AFC’s Baltimore Ravens won.

The problem this year is that the Dow is already playing from behind, and it’s facing some powerful opponents—the slowing Chinese economy, an unpredictable presidential campaign, and the robust defensive line of the Federal Reserve.

“With the Dow already down 8% year to date, stocks can use all the help they can get, so go Panthers!” wrote LPL’s chief economic strategist John Canally.

Source:  Barron’s

The Roller Coaster in Perspective

The recent 2016 correction in stocks has lead to some beneficial soul-searching about investing.

But a number of more recent pieces help show the bright side of investing by putting the bad news in its proper statistical perspective.

Eric Nelson, a financial advisor who is the lead writer for the blog of Servo Wealth Management, warns readers not to sell their stocks.

“First, realize that stock declines are very common,” he writes.

Referring to a chart of stock history going back to 1926, Nelson points out, in just about every year, the stock market experiences a significant downturn. “Yet the long-term return on stocks has been fantastic despite these periodic setbacks. From 1926 through 2015, the return on the S&P 500 was +10% annually—every $1 invested became $5,386. It was positive 87% of the time over five-year periods, 94% over ten-year periods, and has never experienced a negative twenty-year period (not to say this is impossible, just highly unlikely).”

He adds that steep and speedy declines don’t typically mean much greater losses in the future.

“Instead, significant declines are often followed by sharp subsequent upturns,” adds Nelson. “According to research from Dimensional Fund Advisors (DFA), we’ve seen 28 instances where stocks fell at least 10% on consecutive trading days—reminiscent of the experience since the start of the year. On average, stocks were up over 23% in the following twelve months, almost 9% per year over the following three years, and over 13% over the subsequent five years. While some downturns lead to greater declines in the near term, the long-term evidence is clear, lower prices eventually lead to higher future returns.”

In recent days, some of the handwringing among investors is centered on the fear that the current stock market downturn […]

Update for 15 January 2016

15 January 2016

As we head into a long weekend investors are flinching and heading for the exits.

Certainly there are plenty of reasons for concern.

The S&P’s decline in January is so far the second worse monthly decline on record (October 2008 posted the biggest decline).
China’s slowdown in growth is being felt throughout the global economy.
The global slowdown has manifested itself in sectors beyond energy, and the U.S. manufacturing sector has indicated contraction in the last two months.
Corporate earnings have been in recession for two quarters and 4Q earnings most likely will be negative compared to the same quarter a year ago.
Oil prices continue to drop and the price of oil is now below $30/barrel.
Some of the major markets indices are officially in correction territory.

But there are also reasons investors should not panic.

Strong employment and job growth indicate that the economy is not headed for imminent recession.
Consumer spending and sentiment are holding up well.
Earnings growth, while negative, is not plummeting as it was in 2007/2008.
Low energy prices are good for consumers.
The Fed will be slow and measured in raising rates. Lower inflation pressures will help the Fed justify holding off on another increase.
Stock prices were not significantly overvalued before the recent rout and are now close to historical averages (between 15x-16x earnings).
The S&P 500 is about 9% cheaper than the end of last year. When the dust settles, bargain hunters may have an opportunity to pick up great companies at a discount.
Fixed income investments – including corporate credit, U.S. Treasuries and GNMA – are providing their intended risk-control function.
Where there is turmoil there is opportunity.

Global diversification helps smooth the bumps when trying to navigate volatile markets. As with any correction, now is the time to persist […]

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