Profiting When The Stock Market Falls

Aug 5, 2014   //   by Profitly   //   Market, Profitly  //  Comments Off on Profiting When The Stock Market Falls

If you would have simply invested in a Dow Jones Industrial Average, S&P500, or Nasdaq index fund this past week, or even since the start of the year for the Dow, you would have lost money. Yes, you read that correctly, you would have LOST money by investing in index funds that a majority of people believe are safe investments.

On the other hand, if you would have been following our gurus (which a lot of people try to tell you is super risky, you would most likely would have made a great deal of money.

Here’s a comparison of how the Dow, S&P500, Nasdaq are stacking up against our gurus Sykes, InvestorsLive, and Superman. It’s not completely apples to apples since I did the stock market’s return in percentage terms and the guru’s in dollars, but you’ll get the idea:

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This week alone the S&P dropped nearly 3% while Superman closed out a trade for a $150,000+ profit!

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The Dow had its worst week since the week ended January 24 and the S&P saw its largest weekly point decline since May 2012 and its largest percentage drop since June 2012. Ouch. SO why was it such a bad week in the general market? With stocks still near record highs after a strong 2013, any sort of global tension, poor economic report, or market related surprises can quickly cause the market to fall.

Business Insider did a great job summing it up in this post.

UNEMPLOYMENT RATE RISES AND STOCKS SEE WORST WEEK IN TWO YEARS: Here’s What You Need To Know

Stocks slipped for the second straight day, and posted their worst weekly loss since in two years, as the July jobs report came in a bit below expectations and the unemployment rate ticked up to 6.2% from 6.1%. After yesterday’s sharp sell-off, stocks again sank during the morning, but pared some of these losses through the afternoon.

And now, the top stories on Friday:

1.  The S&P 500 finished the week down 2.6%, its worst performance since June 2012. The Dow Jones Industrial Average declined by the same amount, and has now virtually wiped out its 2014 gains. “Whether it’s the Portuguese bank, Argentina or continued unrest in the Middle East, these things are seemingly mattering more to investors now,” Matt McCormick, who helps oversee $11 billion as a fund manager at Cincinnati-based Bahl & Gaynor Inc., told Bloomberg. “All of a sudden, geopolitical things that didn’t matter a few weeks ago are starting to be more relevant concerns, and they’re serving as catalysts to sell. Investors are getting more risk-averse.”

2.  The July jobs report showed the U.S. economy added 209,000 nonfarm payrolls, fewer than the 230,000 that was expected by economists as the unemployment rate rose to 6.2% from 6.1%. Average hours worked were unchanged at 34.5 in July, and wage growth also remained tepid, staying flat over the prior month and growing 2% over the prior year, below expectations for 2.2% growth. Following the report, Dean Maki at Barclays said, “Overall, we view this report as consistent with a return to more moderate job growth in Q3 after the Q2 surge.”

3. The July jobs report also marked the sixth-straight month that the economy added 200,000 or more jobs, marking the first such stretch since 1997. Chris Rupkey, chief economist at Bank of Tokyo Mitsubishi UFJ said, “Quite a milestone today in terms of the number of nonfarm payroll jobs the economy is creating. Six months in a row of big 200K or more monthly numbers. The labor market is strong.”

4. A number of Wall Street economists weighed in on how the report could impact the Federal Reserve’s policy going forward. Dean Maki at Deutsche Bank said, “The slower pace of job growth, the rise in the unemployment rate, and the flat reading on the headline average hourly earnings series all point to slightly less pressure on the Fed to raise rates soon than recent readings might have suggested. Still, we remain comfortable with our view that the Fed will first hike rates in June 2015.” Drew Matus at UBS said following the report that, “Oddly, the slight increase in the unemployment rate was likely welcome news within the Federal Reserve would have pressured their policy outlook.” Overall, the report likely didn’t pressure the Fed’s policy.

5. The Bureau of Economic Analysis released its latest personal income and outlays survey, which contains the personal consumption expenditures index, the Federal Reserve’s preferred measure of inflation. “Core” PCE, which excludes food and energy, rose 1.5% in June against the prior year, but was flat when compared to the prior month. “The acceleration in US income growth in June suggests that in the second half of the year annualized consumption growth will rise from the average of 2.3% of the past two years to close to 3%,” Capital Economics said.

6. In addition to the jobs report, two manufacturing indexes came in mixed. Markit’s July PMI came in at 55.8, below expectations for a 56.5 reading and below June’s 56.3.  Following the report, Markit’s chief economist Chris Williamson said, “July data pointed to continued strong growth of production levels and incoming new business across the U.S. manufacturing sector, although the latest survey indicated some loss of momentum since the previous month. Employment growth also moderated during July, and was the weakest in the current 13-month period of workforce expansion.” The Institute for Supply Management’s latest manufacturing report, however, came in better than expected at 57.1 beating expectations for 56.0 and topping June’s 55.3. The prices paid subcomponent of the ISM report also beat expectations, rising to 59.5 from June’s 58.0 and the 58.0 expected by economists.

7. The University of Michigan’s consumer sentiment survey for July slipped to 81.8 from 82.5 in June, though this reading was in-line with expectations. “Overall, today’s report shows consumer sentiment in the same narrow range where it has remained so far this year, but well below readings seen during the housing bubble,” said Barclays’ Dean Maki. “Thus, it remains consistent with continued moderate growth in consumer spending.”

To see the final three headlines, read the article on their website.