Investors have been subjected to a relentless barrage of media coverage pertaining to the debt ceiling problem over the past several days and weeks.
Unfortunately—and quite obviously—no one knows what the implications might actually be should our Congress fail to meet the impending August 2nd deadline. Therefore we are all left to surmise what those possibilities are.
It’s in the politicians’ best interests to delay the ultimate resolution of the debt problem for as long as possible...
By that I mean either this November’s upcoming congressional elections, or even more likely, the November 2012 presidential election. Therefore, there is no incentive at this particular moment for either side to resolve this matter for the long term.
Instead, both sides would prefer to see this turn into a referendum on their respective tax and spend policies, and thereby allow voters to make their feelings known at the ballot box. Both sides believe they’re right and that the populace will side with them. And it’s true that the November vote would make clear the truth of how the public feels about this issue.
One thing that we must do as investors...
One thing that we must do as investors is to focus on the underlying fundamentals of the economy and on the financial markets rather than on the media headlines. At some point in the near term, we will move beyond the political stalemate and the media’s attention will again be directed to the actual state of affairs in the financial markets, and in particular, the equities market.
With yesterday’s decline, the market averages have moved back into the middle of their trading range which has been in effect for most of 2011. The key technical support levels to bear in mind are 1,249 for the S & P 500 and 11,555 for the Dow Jones Industrial Average. Right now we are at 1,305 on the S & P and 12,302 on the Dow. Some highly respected market pundits believe that the trading range will eventually break out to the upside, particularly once the debt ceiling issue is resolved.
Other market commentators are calling for at least a 5% pullback in the stock market—that might be in addition to the roughly 2% loss in the S & P 500 yesterday. In any event, a pullback of up to 10% can be considered normal “backing and filling” in a bull market and does not technically constitute the true definition of a correction unless the decline exceeds 10%.
Finally, it bears remembering that long-term, conservative-oriented investors generally try to avoid holding more aggressive investments in their portfolios. Consequently, during sharp market declines, these more conservative investors have generally suffered lower losses than their more aggressive brethren.
*Past performance is no guarantee of future results*
*Nothing contained in this quarterly newsletter should be construed as investment advice*
Andrew J. Fama Asset Management, LLC is a New York Registered Investment Advisory firm established in 2001. With over 30 years of experience representing financial institutions, businesses and individuals, Mr. Fama understands the risks inherent in all types of investments.
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
|http://andrewfama.com
Market Comment: July 28, 2011
Written by Andrew J. Fama on Thursday, 28 July 2011.
Investors have been subjected to a relentless barrage of media coverage pertaining to the debt ceiling problem over the past several days and weeks.
Unfortunately—and quite obviously—no one knows what the implications might actually be should our Congress fail to meet the impending August 2nd deadline. Therefore we are all left to surmise what those possibilities are.
It’s in the politicians’ best interests to delay the ultimate resolution of the debt problem for as long as possible...
By that I mean either this November’s upcoming congressional elections, or even more likely, the November 2012 presidential election. Therefore, there is no incentive at this particular moment for either side to resolve this matter for the long term.
Instead, both sides would prefer to see this turn into a referendum on their respective tax and spend policies, and thereby allow voters to make their feelings known at the ballot box. Both sides believe they’re right and that the populace will side with them. And it’s true that the November vote would make clear the truth of how the public feels about this issue.
One thing that we must do as investors...
One thing that we must do as investors is to focus on the underlying fundamentals of the economy and on the financial markets rather than on the media headlines. At some point in the near term, we will move beyond the political stalemate and the media’s attention will again be directed to the actual state of affairs in the financial markets, and in particular, the equities market.
With yesterday’s decline, the market averages have moved back into the middle of their trading range which has been in effect for most of 2011. The key technical support levels to bear in mind are 1,249 for the S & P 500 and 11,555 for the Dow Jones Industrial Average. Right now we are at 1,305 on the S & P and 12,302 on the Dow. Some highly respected market pundits believe that the trading range will eventually break out to the upside, particularly once the debt ceiling issue is resolved.
Other market commentators are calling for at least a 5% pullback in the stock market—that might be in addition to the roughly 2% loss in the S & P 500 yesterday. In any event, a pullback of up to 10% can be considered normal “backing and filling” in a bull market and does not technically constitute the true definition of a correction unless the decline exceeds 10%.
Finally, it bears remembering that long-term, conservative-oriented investors generally try to avoid holding more aggressive investments in their portfolios. Consequently, during sharp market declines, these more conservative investors have generally suffered lower losses than their more aggressive brethren.
*Past performance is no guarantee of future results*
*Nothing contained in this quarterly newsletter should be construed as investment advice*
Social Bookmarks
About the Author
Andrew J. Fama
This e-mail address is being protected from spambots. You need JavaScript enabled to view it | http://andrewfama.com