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Posted by on Oct 6, 2017 in Crossing Wall Street, Featured, Market Insight

Crossing Wall Street Review – October 6, 2017

Crossing Wall Street Review – October 6, 2017

By Eddy Elfenbein, editor of Crossing Wall Street and portfolio manager of the AdvisorShares Focused Equity ETF (Ticker: CWS)

Doing Nothing Is the Smartest Thing to Do

I was invited on CNBC on Thursday. We usually do three segments, one of which is live on the air, the other two go up on the Internet. In one of the taped segments, the host, Eric Chemi, asked me about the market’s volatility and what investors ought to do about it.
I was stumped for a moment, because you’re expected to give some insightful perspective on whatever the subject is. In this instance, the answer is simple—keep doing what you’re doing. Just stay with your stocks and don’t get scared out of anything. I told the host that investors shouldn’t “overthink” this market. Just lie back and think of capital gains.
I apologize if this advice isn´t terribly interesting or earth-shattering, but nothing is what you should be doing right now. Go do it. Since August 24, the S&P 500 is up 4.64%. As I said, this won’t last forever.
This is a broad generality, but awful markets don’t spring directly on the heels of good markets. Rather, the market’s biggest plunges have typically come when stocks are already sliding. The market performs much better than average when it’s already at an all-time high. Also, volatility tends to be much lower. Bad markets create volatility, not the other way around.
I want to highlight a few currents running just beneath the surface of this market. For example, financial stocks have done quite well over the last month (we also talked about this on CNBC). For example, Bank of America just touched its highest price since 2008 (it’s still less than half its 2007 high).
Obviously, the changing perception of what the Fed will do in December is a major factor helping bank stocks. Also, a lot of the big banks haven’t done so well since the start of the year, so they’re playing catch up. This week we saw cycle-high yields for both the one- and two-year Treasuries. This is typically the area of the yield curve that’s most sensitive to interest rates. The one-year yield is up to 1.35%. Three years ago, it was at 0.10%.
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