Another Wild Day on Wall Street…Do I Sell, Hold or Buy?

Why is it that when Europe sneezes the rest of the world catches a cold? The simplest answer is every country is interconnected one way or another in this global economy. There was a day when international stocks had a low correlation to US stocks…but now it seems as though when one country has bad news, every country feels its pain.

Investors have experienced more volatile days over the past several weeks than ever before.  Major events influencing the market’s behavior began with the debt-ceiling debacle, which in hindsight was not handled well by Washington, along with Standard & Poor’s downgrading the US’s stellar triple AAA credit rating to AA+. This downgrade sent a message around the world that the US isn’t as safe to invest in, which is so far from the truth. Investors who own US Treasury Bonds, whether it be individuals or foreign countries like China who owns over $1 trillion worth of our paper, aren’t concerned that the US will default on its debt obligations. What makes the US stand apart from countries like Greece, Spain and Italy is the US can print their own money.  This downgrade was more about the partisan political process in Washington than how sound the US is, maybe Congress and the Senate should have gotten an F and the US should have stayed AAA.

World stock markets continue to fluctuate; gold is headed to the moon with record high prices as countries in the Euro Zone deal with their debt crisis and data in the US showed a slowing economy.  Investors around the world are worried about global growth, and here at home, we are worried that Washington doesn’t understand or know how to repair the unemployment situation that is weighing down our economy.  The real problem was and still is JOBS.

I think I’ve said enough about the bad, now let’s talk about the good. Corporate America has more cash on their balance sheets than ever before, we are slowly adding jobs and the economy is gradually growing.  Consumer confidence is low, but this is expected during times like these where people are still worried about their jobs and benefits while paying more for gas and groceries, leaving them with less money to spend elsewhere in the economy.  Fundamentally the economy is progressing and companies are generating profits, which are a couple reasons why the stock market feels different today than 2008. The US shouldn’t fall back into another recession unless things get a lot uglier from here.

The silver lining in all of this is that we have been able to take advantage of the volatility by adding some investments to clients’ portfolios that should do well.  As an investment professional, I’m looking for blood in the streets, investing in areas that most investors don’t have the courage to do so on their own. Warren Buffet says it best though, “Be fearful when others are greedy and greedy when others are fearful”. There’s a lot of bad news priced into the stock market but I am hopeful that our recent changes, will be profitable.

There is plenty of blame to go around for the whirling stock market and I can promise you it won’t be the last time we see volatility, but now is not the time to panic.