It’s been a rough go of it for the entire country over the past several days, and though the worst of “Superstorm Sandy” is over for most, the cleanup and restoration of the damage is just beginning. I first want to extend all of my wishes to the victims of this devastating tragedy, and wish them Godspeed in their return to normalcy. I also want to congratulate all of those who braved the elements and came to the aid of their fellow citizen. This is the way we do things in America, and though we have our disagreements about who should be our next president, or about what the proper role of government is, or about which way the financial markets are headed, when it comes to taking care of our own we do so in laudable fashion.
Now that Sandy’s wrath is mostly over, the return to trading on Wall Street has begun, and now we will have to see how stocks react. Before the storm took center stage, and before it forced the cancellation of two trading days, stocks had sold off after a plethora of downbeat earnings reports sent shivers through Wall Street’s spine. Here we are not talking about some obscure companies falling a bit short of expectations. Rather, we are talking some of the biggest, most loved and most owned bellwethers in the market today.
Some of the corporate names that have left investors feeling less than enthusiastic with respect to their fiscal performance during the third quarter are 3M (MMM), Apple (AAPL) Caterpillar (CAT), DuPont (DD), General Electric (GE), Google (GOOG), Intel (INTC), McDonald’s (MCD), Microsoft (MSFT), United Technologies (UTX) and United Parcel Service (UPS).
The rash of disappointing numbers, along with restrained outlooks for Q4 and the full year, prompted sellers to take control of the market. Last week, the Dow fell 1.77% while the S&P 500 lost 1.48%. The NASDAQ Composite managed to hold its own, sliding just 0.59% on the week.
More importantly, the selling now has taken all three major indices below their respective 50-day moving averages. Historically speaking, this is the first step in a potential correction. The next step would be a breaking of support at the respective 200-day moving averages. If stocks fail to maintain their integrity above these levels, then look out below.
I expect the next several days to be laced with a lot of cautious trading, as everyone will resume their focus on the presidential election. In fact, by this time next week we will know who the next president is, and that will undoubtedly have a big effect on both the perception and mood of the markets. As always, I want you to be prepared for anything, because as history tells us, things can change when you least expect it.
Finally, I have good news to offer you during what has been a challenging week. With just days to go until the U.S. presidential election, your investments and personal wealth depend greatly on who wins. That's why my colleagues and I have prepared a special investment report for you, absolutely FREE of charge. It's called “Eagle's 2012 Election Guide: 4 Winning Picks for the Next President.” You'll learn of four investment recommendations for a Mitt Romney win and four plays for a second Obama term. But that's not all we're offering you. The day after the election, on Wednesday, November 7th, 2012, at 2:00 pm ET, I invite you to sign up to receive the free special report and to join me for a FREE online Post-Election Investing Summit.
ETF Talk: Let Hurricane Sandy Propel Your Portfolio Forward
The physical destruction caused by Hurricane Sandy need not ruin your investment portfolio. In fact, home builders and home renovation big-box stores could benefit from the need to rebuild homes, office and apartment buildings and, in some cases, entire neighborhoods. One exchange-traded fund that I am eyeing that could ride the post-storm reconstruction wave of Hurricane Sandy is the iShares Dow Jones U.S. Home Construction Index Fund (ITB).
Not only does ITB feature the nation’s biggest publicly traded home building companies, it also includes Home Depot and Lowes. The iShares Dow Jones U.S. Home Construction Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Select Home Construction Index. Companies included in the fund should be among those to benefit the most from the post-storm construction efforts.
Media reports indicate that Hurricane Sandy could inflict a cost of $20 billion before its last remnants dissipate. If that estimate holds, Hurricane Sandy will rank as one of the ten most costly natural disasters in U.S. history.
The fund, which holds $1.450 billion in assets, is comprised mainly of home construction companies, 64.44%; but also features building manufacturers, 17.09%; home improvement companies, 13.66%; and furnishings companies, 4.63%. ITB’s top ten holdings feature an array of well-known construction, building and home improvement companies. They are: Lennar Corp., 9.70%; Pulte Group Inc., 9.61%; DR Horton Inc., 9.17%; Toll Brothers Inc., 8.30%; NVR Inc., 7.59%; Home Depot Inc., 4.55%; Ryland Group Inc., 4.09%; MDC Holdings Inc., 3.86%; Lowe’s Cos. Inc. 3.85%; and KB Home, 3.65%.
As the chart above shows, the ETF has been on the rise this week. With the latest disaster, I expect the fund to climb further in the weeks and months ahead as re-construction and renovation spending boost revenues and profits at the companies that ITB’s performance is designed to track.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.
The '87 Market Crash -- Lessons Learned 25 Years Later
Do you know where you were 25 years ago?
If you had money in the stock market, then you probably don’t need me to remind you that just about 25 years ago, October 19, 1987, is notoriously known as “Black Monday,” and this ominous moniker has been assigned for very good reason. That’s because on that day, the Dow Jones Industrial Average suffered its largest one-day percentage loss ever, with a horrific 22.6% collapse.
Just about every investor lost huge amounts of money that day; however, there was one group of investors that sidestepped the selling almost completely. Here I am proud to say that it was followers of the Fabian trend-following philosophy didn’t suffer any losses at all.
How was this possible?
Well, because a few days prior to Black Monday, we issued a Fabian Plan Sell signal, and we recommended investors get out of the market completely. We knew that the technical levels on the market signaled a pending decline. Though we couldn’t have predicted such a massive one-day slide, we did know that stocks were facing a high probability of danger.
This 1987 crash was a big moment for many investors, because it made them see that their money wasn’t always safe, and that you couldn’t just buy and hold stocks without consequences. Well, today this premise even truer. In fact, now that there have been so many technical innovations in the market due to high-speed computers, I suspect that another big drop -- possibly of even larger proportions -- could easily take place again.
In this week’s Monday Morning Market Outlook podcast, I go into great detail about the 1987 market crash, including the valuable lessons learned from this experience. I want you to be sure and listen to this podcast, as I think it’s the one don’t-miss discussion of what Black Monday means for us all.
Here are just a few highlights of some of the lessons learned from that fateful day:
Crashes cannot be avoided, because human nature always involves panic.
Crashes don’t happen in a single day. There was a lot of selling prior to Black Monday, and those who don’t heed the warning signs usually get punished.
The degree of exposure to unprotected risk will dictate your pain in the next crash.
Having a diversified, risk-protected portfolio with exposure to multiple asset classes is your best weapon in the battle to survive the next crash.
The aftermath of market crashes usually bring about the best buying opportunities.
For the past several weeks, I’ve been providing you with various lists of ETFs that I consider to be some of the top picks in their respective genres and sectors. This week, I have another list for you, and it is my Top 10 Commodity ETFs.
Commodities such as gold, silver, oil, natural gas have become heavily traded of late, as investors seek market-beating returns in these sectors. The table below is the list that I watch when I want to see the overall trend in each of these respective markets.
If you’re looking to put the high potential return of commodities into your portfolio, then start with this list. Be careful, however, because though commodities can provide sizeable returns, they also can be very volatile. As a result, you should make sure you limit your overall exposure to funds in the space.
The Wisdom of Webster
“The contest for ages has been to rescue liberty from the grasp of executive power.”
Next week the country will decide who the next chief executive will be. And though I am not going to tell you who you should vote for, I do want you to remember the quote here from Webster. I know I will have this notion in mind when I cast my vote.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.