The Long View

I always find it interesting to listen to news reports about the stock market. When it is just coasting along, it is not newsworthy. When it is going up, it does not appear to be newsworthy. But, when the markets move down – it is newsworthy! Thus we have been hearing a great deal about the recent market swoon. To put this in perspective, consider that since the middle of last year the market has been moving up quite nicely. This isn’t to say that there haven’t been some bumps along the way. From mid-January to mid-February the market dropped about 7.2%. It then headed back up and continued to rise. In September the market went down over 4% in a two week period. The ups and downs of the stock market are normal. As I indicated in my July and October newsletters, I expected as much as a 10% correction before year end. We have now seen a 10% correction in small and mid-cap stocks and an intense decline - not quite reaching 10% - in large stocks. The result appears to be a bounce back up. The S&P 500 hit a little over 2000 at its high and went down to about 1844 during this decline.  This is a drop of about 8%. As of this writing, it is at 1896 and moving back up sharply. Many investors are now seeing this as a buying opportunity.

The most important factor to remember is that market volatility is normal. We take the long view, which looks excellent. Oil prices have declined dramatically as the U.S. pipelines I’ve been talking about for two years came on line recently. They are now moving a lot of oil into world markets, driving down prices. The good news is cheaper gas at the pump, less expensive heating this winter and lower transportation costs. These are all good for the consumer and should allow consumers to buy more of what they want, which should boost spending and help the economy. This may also benefit the bottom line of businesses. As the rest of the world is in crisis and experiencing very slow economic growth, investors around the world are investing in U.S. Treasury Bonds and high quality U.S. corporate bonds. The result, for example, is that the 10-year Treasury bond, which is a key indicator in our economy, has been driven down from over 3% earlier in the year, to below 2% for the first time in a great many years. The change in this bond rate has resulted in the lowering of the 30-year mortgage interest rate from over 4.25% two weeks ago, to about 3.9% now. This is good for the consumer who wants to buy a home or refinance, and good for the building and supply industries.  I can go on and on, but the point is, the U.S. economy is likely posed for one of the longest expansions in our recent history.  

The long view is the best view!

Ed Mallon

Posted October 17, 2014 2:51 PM