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Lindsey Report September 2015


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If you have turned on the television, read a paper or even listened to talk radio in the past two weeks, you are likely well aware of the tumultuous behavior in the equity markets (Dow, S&P 500, Nasdaq, etc…). We have seen some erratic moves both up and down, but mostly down.

As previously noted, I expected to see volatility this summer and we sure got it in August. For example, the VIX is an index used to measure volatility: a higher number suggests greater volatility. It spiked up significantly and rapidly in August. In one four-day period, it went from 13.79 to 40.74 (AP). That’s a big increase: it also implies that volatility may be around a while.

With advances in technology and computer driven trades, it is probably safe to say that when markets move, either up, but especially down, they will probably continue moving faster and faster. Unless you are buying and selling on a daily basis (aka, a day trader), watching these moves can prove unnerving, and potentially futile, for a long-term, diversified investor.

While there are a number of reasons for our pullback, the most popular one is the slowing Chinese economy and the resulting selloff in their stock market (the Shanghai composite). As our markets have fallen 10+%, the Shanghai is down 38% since June! Mind you, they arguably had a bubble, as the Shanghai was up 151% in the prior 12 months (Bloomberg).

It is not unexpected that our markets would negatively react to this news, as our markets have not experienced a 10+% fall (also known as a correction) since 2012 (AP). Historically, that is a long time to go without a correction. Moreover, many people feel as though our markets have gotten ahead of themselves and we were/are overdue: these things can be self-fulfilling.

Fortunately, our economy has continued to grow. The Commerce Department recently reported that we grew at 3.7% in Q2 and reports are that growth continued in July-August (Reuters). It remains to be seen how much of an impact recent developments will have on our economy and/or if it will lead to further weakness in equity markets. Hang on, it might get bumpy.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful

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