Prominent Investment Adviser Sizes up the Market Following Wild Week

As the markets open for a Monday following last week's chaos, one of the most respected investment advisers says there is nothing unusual about last week's market gyrations if you look at the history of markets, News Radio 1200 WOAI reports.

Andy Smith, Senior Vice President of Financial Engines and the host of the program 'Investing Sense' on 1200 WOAI, says if you look at the history of the current bull market, which dates from December of 2009, gyrations like the ones we saw last week have not been uncommon.

"2010, we saw the Greek bail-out, we saw a 16% drop in the market," he said.  "2011, we saw the European debt crisis, market drop of 19%.  2013 we had the 'Taper Tantrum,' (the surge in Treasury bond yields in response to the Fed's decision to 'taper' its injection of capital into the economy), and that led to a market drop of 5.8%.

"Smith says last week's gyrations, unlike, for example, the market crash in 2008 prompted by problems with Bear Stearns and Lehman Bros, which accompanied the housing value collapse, are the result of assets being reallocated, in many cases, to bonds in anticipation of higher yields following expected interest rate increases in 2018.  

He says the fundamental economy, not just in the U.S. but across much of the industrialized world, continues to be strong.

"30% of the S&P 500 which reported 4th Quarter earnings, 81% beat estimates," he said.  "84% beat sales expectations.  You have the last three quarters of U.S. GDP growth are the best since 2014, jobless claims are the lowest they have been since 1973."

And he says the inflation fears which are prompting the rush to bonds is largely due to higher gas prices, and not to any 'baked in' inflation, like we saw back in the 1970s.  

In addition, with the Dow in the mid 20,000 range, as it is today, gyrations are going to be wilder than when the Dow was in the 2,000 level, as it was during the famous 'Black Monday' crash of 1987.  Back then, a drop of 500 points was a far greater percentage of the average than the 1,000 point drop was last week.

Smith said the gradual rise of the Dow, especially over the past few months, has created a sense of 'complacency,' where we forget the volitility that the indexes experience regularly.

"These 5% drops, usually happen five times per year," Smith said.  "Ten percent drops usually happen twice a year.  Usually a 15% drop, its supposed to happen once a year, but problem is, its been like 19 months."

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