Market Commentary for WH Cornerstone Clients
Stocks are trading sharply lower as the banking
crisis is now spreading to
Asia. Yesterday, Asian stock markets
had a tough day. Overseas stock
markets took one of their worst tumbles.
It's looks like another fearsome Friday for us.
Stocks trade on three things:
This market represents fear.
- Fundamentals (earnings)
- Technical (charts)
- Market psychology (fear and greed)
The massive deleveraging of financial firms
and market repricing is hopefully nearing an
end. Let's hope today is
In the stock market, capitulation is
associated with "giving up" any previous
gains in stock price as investors sell
equities in an effort to get out of the
market and into less risky investments. True
capitulation involves extremely high volume
and sharp declines. It usually is indicated
by panic selling.
After capitulation selling, it is thought
that there are great bargains to be had. The
belief is that everyone who wants to get out
of a stock, for any reason (including forced
selling due to margin calls), has sold. The
price should then, theoretically, reverse or
bounce off the lows. In other words, some
investors believe that true capitulation is
the sign of a bottom.
Here's the good news. On average,
have been good. You can go to CNBC's website
and look at the earnings surprises. They have
been overwhelmingly positive. However,
companies are starting to guide that next
quarter's outlook is not looking so rosy.
the economic data available to us today, we
do not see a slow down lasting a long time.
We have low interest rates, low inflation,
and relatively low unemployment. Now, we are
starting to see improvement in the credit
markets. Policy actions are just starting to
come on-line with more to come. The Fed
should act very decisively next week when its
commercial paper market facility kicks in.
The Federal Reserve announced back on October
7th that it was creating a special purpose
vehicle to purchase 90-day commercial paper
directly from eligible issuers. This creates
liquidity for big US companies.
A few years from now, investors sitting on
cash, will look back on these days as the
greatest lost opportunity. Over the long
haul, long-term stocks have done better than
any other asset class. While this may not be
the absolute bottom, equities are on sale,
and today, they may be heading for the
We still advise you to stay the course.
If you have cash on the
sidelines, you may want to
consider making some buys.
Please advise us promptly if there are
ever any changes in your financial situation
or investment objectives. Feel free to give
us a call if you want to discuss anything
Sincerely, Paula Harris and Bill Harris, CFP