Making Money Alert
Holiday Volatility Reigns Supreme
12/21/2011
In a year where volatility has ruled the roost, I guess it should come as no surprise that stocks continue to soar and dive into the final weeks of the year. We saw this characteristic 2011 volatility rear its head on Tuesday, as the Dow surged more than 337 points on renewed optimism in Europe, and on a better-than-expected jump in domestic home building.
That optimism from Europe quickly faded in Wednesday’s trading, as stocks fell as much as 100 points on the Dow before coming off of their lows. The decline on Wednesday actually was surprising, as stocks were up in the pre-market on news that the European Central Bank’s longer-term refinancing operation allotted a bigger-than-expected 489.19 billion euros ($639.96 billion) in three-year loans to 523 euro-zone banks. This move already has been called a European version of QE2 (Quantitative Easing, part II), so you’d think that the market would love it.
Unfortunately for the bulls, a big earnings miss by tech bellwether Oracle (ORCL) helped bring down stocks in the space, and that decline also sent the major averages lower.
As you can see by the chart here of the S&P 500 Index, stocks now are trading above their short-term, 50-day moving average, but still well below their long-term, 200-day moving average. Of course, if we look at the wild fluctuations that have taken place in stocks since late July, we get the sense that this year has been very, very difficult for nearly every investor, and that’s especially true for the pros.
In fact, according to data firm Lipper Analytics, the average diversified U.S. stock mutual fund has fallen 5.9% this year. That’s well below the 1.4% loss for the S&P 500 (as of Dec. 16). Lipper found that out of 8,036 funds, 7,399, or 92%, are showing a loss in 2011.
Indeed, 2011 has been a difficult challenge for us all. But one thing that I’ve learned from this year’s action is that patience is perhaps the greatest virtue an investor can possess. The ability to keep your composure and not chase investments is not an easy task; however, if you were able to stick to your discipline, it would have helped you from suffering much of the stomach-churning volatility we had this year.
I suspect we’ll continue to face more volatility as we enter 2012. But there is one thing that I want to make sure you do, and that is to stay in the game.
There’s no reason to check out and give up on the prospect of getting big returns in the equity and bond markets in 2012. Opportunity will be there in the year ahead, and we’ll be here to help you take advantage of it -- so make sure you’re along with us for the ride.