Last week was a volatile one filled with uncertainty that resulted in a sharp decline in stock prices. The Euro dropped to a four year low before rebounding a bit in what appears to have been a “short covering” rally. The 30-year bond yield hit fresh lows for the year and the S&P 500 closed on Thursday at the lowest level since February (taking out the so-called “fat finger” low).
There wasn’t a specific headline to account for the swings, though continued uncertainty about Europe is keeping negative investor sentiment in place for now.
Here at HFI Wealth Management, we continue the process begun earlier this year of reducing managed portfolio exposure to stocks. So though the markets are significantly lower, portfolio performance has compared favorably on a relative basis. We stand ready to continue protecting portfolio values if the stock market continues its march lower.
Putting Things in Perspective:
Take a look at where the market (S&P 500) has been over the last few years:
10/07 1565 S&P 500 All time closing high
3/09 683 Down aprox 56% from the peak
4/10 1219 78% above its 3/09 low and 22% below the 10/07 high
5/20/10 1071 12% below its 2010 high, down 4% ytd
Therefore, after a 78% advance from the March lows, the S&P 500 (so far) is experiencing a 12% decline (as of May 20th).
Why the recent increase in volatility? Despite the confidence with which the media presents causality of any market event, you can never be sure of the direct cause of any short term changes in market sentiment. Certainly, there are a number of qualified candidates:
- Budget ”Crisis” in Portugal, Ireland, Italy and Greece (PIIGS)
- Civil unrest in Greece due to the required reduction in entitlement spending
- Lack of confidence in leadership (Legislative and Executive) to get U.S.budgets under control and fear that the European budget crisis is a preveiw of things to come in the U.S
- The implications of the ”Euro” crisis spreading and derailing the global recovery
- China taking actions to SLOW their economy due to rising inflationary pressures
- Fannie and Freddie’s continued drain on the U. S. taxpayer
- Continued high unemployment
- Irregular trading activity (most likely due to electronic order routing) which erodes investor confidence in financial markets