Market manipulators have been taking profit on commodities since last week and continue to sell with intention to initiate panic in the stock market. However, selling is confined to liquidation of existing holding in commodities but no short selling in equity stock. Nervous day traders followed the selling in stock market. On the other hand, patient day traders and other investors are not trimming their portfolio but instead wait for buying opportunity.
Although broad market index recovers nearly all the loss from peak, the speculative trading portfolio suffers significant loss due to under-performance of the stock holdings. The portfolio is small and only a few stocks are held. It is unfortunate that most of the stock holdings fell to recent low due to worsening individual quarterly result. This indicates the weakness in stock selection despite the confidence of a strong market. The ETF holding follows more closely on market performance.
Since the portfolio is intended for speculative trading on short term market movement, individual stock performance may differ significantly from broad market. As a result the portfolio will increase the weighting of ETF until stock picking skills are improved.
Market will exhibit wild swings and market participants will follow the herd. As household wealth grows, investors will gradually regain the confidence in equity stocks although it will take long time. But in the meantime, market manipulators will continue to rake in money from market, exploiting the herding behaviour and fear of panic investors.
Is the Market Rigged? Absolutely, Says Streettalk Advisors CEO
The U.S. Labor Department's monthly employment report is one of the most-anticipated market-moving data points watched by investors and traders on Wall Street.
But ahead of Friday's February jobs data, CNBC reports that the Labor Department and other government agencies are concerned some traders are illegally accessing data ahead of its official release while others are jamming agencies' websites to give only a handful of people access to information, slowing it down for everyone else.
News of this brings us here at The Daily Ticker to ask again the age-old question: Are financial markets rigged against the individual investor?
"Absolutely," says Lance Roberts, CEO of Streettalk Advisors. "If you're trying to look at the economic data that is coming out and you're hitting refresh on your Internet browser you are so far behind Wall Street you'll never catch up."
Then there's insider trading by members of Congress. Even our very own elected officials are using inside government information to profit at the expense of everyone else. The public outcry to ban this behavior, which has been going on for years, finally came to light after a CBS "60 Minutes" report last fall. Since then, a bill to prevent congressional insider trading has moved quickly through both the House and Senate, but likely still does not go far enough to make any real difference.
"Understand that buying something and trying to hold it for three years or four years or five years and getting long-term capital appreciation might work for you, but it probably won't because everybody else on Wall Street is trading all around you," he says. For example, while fundamentals of a company may look good, there may be a breaking news event that tanks a stock. Take Netflix.
"Fundamentals still work and fundamentals determine what you buy, but you need to add a technical analysis to your [portfolio] management," he says. "Timing and trends are going to be much more important in the short-term. The goal here is that long-term we can make money, but we have to avoid those short-term declines."
Stock rally helps regain wealth lost in recession
A stock rally at the end of 2011 helped rebuild more of their lost wealth — a trend that carried into 2012. Households responded by borrowing more for the first time since the financial crisis began, even as home values fell further.
Corporations are also wealthier. They held a record $2.2 trillion in cash at the end of the year.
The improved economic outlook has made people more willing to borrow. Household debt increased at an annual rate of 0.25 percent, the first increase since mid-2008.
A survey of economists by The Associated Press last month found that Americans will save gradually less and borrow more, reversing a shift toward frugality that followed the financial crisis and start of the Great Recession.
Roughly half of U.S. households own stocks or stock mutual funds. Stock portfolios make up about 15 percent of Americans' wealth. That's less than housing but ahead of bank deposits, according to the Fed's report.
Most stock wealth is owned by the richest Americans, who also account for a disproportionate amount of consumer spending. Eighty percent of stocks belong to the richest 10 percent of Americans. And the richest 20 percent represent about 40 percent of consumer spending.
Stocks have nearly doubled in three years. Thanks largely to that surge, about 95 percent of people with company-sponsored retirement savings plans have more money in their accounts than they did at the peak of the market in October 2007, according to the Employee Benefit Research Institute in Washington.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
Stocks double in 3 years, but it's a lonely party
For more than three years, ordinary investors disgusted with wild swings have pulled money out of stocks. They've missed a breathtaking bull market: The Dow Jones industrial average has almost doubled from its low point during the Great Recession on March 9, 2009.
In the meantime, corporate America has racked up double-digit profit gains. If investors valued stocks at normal historical levels based on profits, we would be celebrating Dow 15,000, not Dow 13,000.
But the profit explosion is over, and the Wall Street pros who trade stocks mostly for big institutions and the rich are getting antsy. They've been doing the buying. And if Main Street doesn't join them, the historic rally could slow or even end.
Everyday investors "are more aware of the risk of the market," says Howard Silverblatt, senior index analyst at Standard & Poor's. "They're nervous. They're scared."
One measure to watch is the flow of money in or out of U.S. stock mutual funds. From June through January, investors pulled $137 billion more from these funds than they put in, according to Strategic Insight, an industry consulting group.
The refusal by ordinary investors to buy stocks is even more surprising when you consider how little they're making from the alternatives. Their favorite assets of refuge— CDs, money market funds and U.S. government debt — don't even throw off enough interest income to compensate for inflation.
One school of thought holds that multiples of all kinds should be lower now because the U.S. has entered a period of slow economic growth and lower profits as governments and households pay off their enormous debts. Bill Gross, co-founder of the giant investment company Pimco, calls this a "new normal."
Even if you don't believe Gross is correct, perception could become reality. If enough people refuse to buy stocks because they don't think prices will rise much, they won't rise much.
Harvey Rowen, the chief investment officer for Starmont Asset Management, says he's seen this self-fulfilling attitude among his clients. He says the clients who are calling want him to move more of their holdings into cash, or maybe gold.
"Nobody calls up to say, "Buy equities," he says.
Market may be up, but the scars of 2008 are fresh
Cheryl and Jim Friedman, retirees in St. Louis, had two-thirds of their retirement money in the stock market in 2008. When the financial crisis struck that fall and stocks lurched up and down with nauseating speed, Cheryl, a former accountant, pulled the money out.
Fearing that the next crisis was always around the corner, they have kept most of the money out. It's parked in a money-market account earning a meager 0.1 percent per year. The Friedmans watched in agony as stock prices doubled over the past three years.
Some people gritted their teeth through the steep losses and poured more money into stocks while the market was still in free fall. That daring paid off in the returns of a lifetime.
"I felt that either the world's going to end or it's the smartest time ever to invest," recalls Harvey Bookman, 60, of Brooklyn, N.Y., who has made up his initial market losses many times over by buying when stock prices were low.
Since the March 2009 low, there have been only two months in which individual investors put more money into stock mutual funds than they took out, according to EPFR Global, which tracks funds.
The fuel for the market's ride higher since 2009 has come from big institutional investors instead.
"It doesn't feel like we've doubled over the last three years," says Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "The S&P's gains were masked by all the turbulence. That's probably why so many individual investors are sitting it out."
People who had the intestinal fortitude to sit tight during the crash have reaped three years of rewards. 401(k) account holdings have mostly recovered. And contributions at every paycheck during the market bottom bought shares of stock at bargain prices.
Financial experts say the experience of surviving 2008 may embolden investors the next time there's a market shock.
"When we have these downdrafts, they're a good reminder of volatility and a good opportunity to load up on stocks when they're cheap," says James Angel, associate professor of finance at Georgetown University's McDonough School of Business.
"You've got to stay the course," he says. "A lot of people panic when their stocks hit lows, but if they're good companies, they will come back."
That is not so easy for Cheryl Friedman, the St. Louis retiree. She sits in her office and watches market chatter on CNBC all day, waiting for the appropriate time to get back into the market. But the timing never seems right. Not when the crisis was fresh, and not now, when stocks are up more than 20 percent since early October.
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