#TBT "Investors, markets riding rollercoaster of uncertainty"
Allow me to set the stage for today's throwback:
The year: 1999
The Fed Chair: Alan Greenspan
The markets: ups and downs
America's biggest fear: Y2K
A few of these have changed. The year is now 2017. The Chair of the Federal Reserve is now Janet Yellen. And most of us made it through Y2K (there may still be a handful of people living in bunkers--we just can't know). The markets, well, they're still hitting record highs like they were when Nancy wrote this column in 1999, and investors are uncertain. So although a some things have changed since the fall of '99, the piece Nancy wrote is still relevant. Enjoy!
My daughter is a freshman in college. She's about seven hours from home. That was a deliberate strategy. She can't buzz by the house whenever the mood strikes, and she can't run home every weekend. She and I are both going through a learning process.
One day last week, we talked via computer. She was very homesick. Despair was the tone of the conversation, and, when I signed off, I felt helpless. There was nothing I could say or do to "make it all better." Five hours later, she called. She was on top of the world. The afternoon had been wonderful. When I hung up the phone, I was amazed. And I discovered that these rollercoaster emotions were more wearing on me than on her.
Her world is very uncertain right now, and she longs for the safe, sure world of her childhood. But safety would be detrimental to her emotional health.
The stock market has also been on a rollercoaster ride. One day, it's up 180 points, the next, it's down 266 points. Over the last month, the Dow has only had two up days in a row. The NASDAQ fared a little better. While the Dow actually had its peak on Aug. 25 at 11,326.04, and the NASDAQ peaked just recently on Oct. 11 at 2915.96, the rollercoaster for both actually began in mid-July. Ever since this time, we have alternatively soared and dived, but the end result is the same. We can't seem to break out of this mire.
The reason for this inconsistency is the same as for my college freshman: uncertainty. There is nothing the stock markets hate worse than uncertainty.
Each month, the Federal Reserve Board meets to pore over economic data in order to make a decision on the direction of interest rates. And each month, around the meeting time, the market starts holding its breath. Rising interest rates deter gains in stocks. The Fed doesn't want to prevent the growth of the economy and the stock market. But they know that growing too quickly can lead to a fall. It's a delicate balance.
So, Mr. Greenspan and his cohorts study the data for any sign of inflation. Inflation is their cue to pull the trigger on interest rates to slow things down. The economic data is released by the government. Each time a new set is released, the markets react. If jobless claims are down, it means companies are fighting to find good workers and paying them more, and the market goes down. If housing starts are down, it looks like the economy is slowing. The market goes up. If consumer confidence goes down, the market goes down.
The data has been mixed. There is no clear indication that inflation is causing our economy to heat up. And uncertainty rules the day.
In September, the Japanese yen gained against our dollar. The markets went berserk. Japan had been in a slump for a long time. You'd think everyone would be happy to see them recovering. But, no, this was a ad thing. This change in exchange rates affects the delicate trade balance. Don't try to figure it out. Just know that a strong dollar means a strong U.S. economy.
And then, the mother of all uncertainties... Y2K. Will we be here on Jan. 2? Will the whole world go crazy? Will the markets be able to function? Will my parents get their Social Security checks? While some people are convinced that this will be a disaster and are preparing for the worst, most of us just nervously giggle. We don't know, and that is affecting our investing attitude.
What we're seeing now in the markets is the combination effect of those uncertainties. Some investors are opting for the sure and the safe, like CDs, cash accounts or even gold bullion. But such safety can be detrimental to your financial health. Instead, I recommend choosing a combination of stocks of companies that have proven track records. Don't compound the uncertainty by investing in start-ups with no history. Don't compound the uncertainty by purchasing stocks at high prices in hopes they'll go higher in this rollercoaster market. Use the dips to purchase quality.
The last thing you need to understand is that, in most cases, the rollercoaster ride of the market is more wearing on the investor than on the investment.
--Nancy Lottridge Anderson, Mississippi Business Journal, November 8-14, 1999