“Black Swan or Opportunity?”

What is a Black Swan? The theory was developed by Nassim Taleb to explain unexpected events of large magnitude and consequence and their dominant role in history. They are generally unforeseen, can be terrifying and often become the “reason du jour” the markets move negatively with seemingly few reasons.

The equity markets have been moving lower since the middle of July, coinciding with lower oil prices and slower economic activity both at home and abroad. The recent decision by the Federal Reserve to keep interest rates unchanged due to low inflation numbers, and slow growth rate further fuels the uncertainty of the economy for now, and in fact may deter the Fed from raising rates through the end of the year as well. This is all negative, right?

Well in my mind, no and consider this information: according to JP Morgan, we have had positive annual returns in the last 27 of 35 years, despite intra-year declines from the highs of the market to the lows of 14.2% on average. We have not seen many big pullbacks over the last few years, and in fact, according to their data, the inter year pullbacks from 2012 to present have been just -10%, -6%, -7% and all have ended the year positively. This year (as of today), the peak to trough for the S&P is approximately -12.3%. To think that a less than average pullback and no decision by the Fed is a reason to sell, discounts the huge success of Apple’s iPhone and watch, Uber, 3-D printing, Tesla or even fracking for some energy companies. There are dozens of success stories, of course and many more to come that we simply can’t see right now.

So why did I start with the Black Swan? I did so to discount the theory that the Fed has some kind of knowledge and secrets no else has, and since Janet Yellen did not exude enough confidence in her post meeting speech, the market must be in real trouble. I did so because “since the market is not up, it must go down” is the kind of logic that makes investors losers, and not winners. I did so to discount that there is a “Black Swan” waiting around the corner waiting to pounce and crush the economy. In my opinion, these arguments are sophomoric and should be ignored. Further, I believe that this is a market pullback, straight and simple, and really not much different than those we have seen before.

Consider that the (August) Unemployment Rate is currently at 5.1% compared with 10% in October 2009. In addition, Initial Claims have been below 300,000 for 29 straight weeks and that the last jobs report showed 173,000 new jobs. (source: the Bureau of Labor Statistics). These numbers tell me that the economy is still doing well, and that this is a market pullback that is not unusual. While it is not for everyone, these are the kind of market conditions that can provide long-term opportunities for those willing to accept the volatility that comes with them. Please give me a call or e-mail me with any concerns or questions you may have. Our phone number is (775) 850-2500 and my e-mail is: phil.mahoney@lwpreno.com.

My best for a great September and Autumn season. Thank You for Your Business. — Phil

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Some of this research material has been prepared by LPL Financial. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly. Approved Tracking #: 1-423354.