Oil, Bonds, and ISM…Too Heavy Sends Stocks Lower

Once again, oil plunged and it took stocks along for the ride. Although, I do think other worries have popped up, including questions about our super-duper economy. In addition to oil’s continued stumble, the ten-year Treasury yield cracked 2% and the Institute of Supply Management (ISM) Report on the service economy was a historic miss. 

In the last few days, I have interviewed some of the smartest people on Wall Street and some of the smartest people in the financial media, including Jon Hilsenrath of the Wall Street Journal. Overall, they continue to be overly confident in the economy and in the stock market. Part of the reason is the cheap oil and the strong U.S. economy, but how strong is the economy?

Last Wednesday, the Dow popped 80 points at the open only to struggle to hold on to slim gains while other major indices were slammed.

Yesterday, the Dow was up 75 points, but the more it digested the ISM report on service, the rally faded. Perhaps, it was triggered by the realization that for the first time ever, all ten components of the report were lower than the previous month.

Then, there are the bond yields. The ten-year is nearing the October low and a record all-time low typically associated with the unfortunate economic circumstances in America. I am leaning with the cool dudes on the street who say, “It’s different this time, but it is a bright yellow flag.”

The Pain of Being Down

They say that breaking up is hard to do and now scientists have zeroed in on the physical reasons why it hurts so much:

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• Your brain goes through anguish
• Your tears are less salty, resulting in swollen eyes
• Chest pain is equal to being punched
• Sudden heart attacks are not uncommon
• Divorced people suffer more mobility problems
• Weight gain around the stomach
• Skin disorders develop

Yet, I contend for many, losing money in the stock market has an even greater impact on the body and mind.

Scientists tell us loss aversion means a loss of $100 is twice as impactful as the gain of $100.

Here’s the rub: there is a giant difference between being down in a stock or in the market and actually losing. I got a tweet this morning that said, “78% of investors lose money in the market.” I am not sure where that nonsense comes from, but I know lots of people who buy one stock and often sell at a loss… mostly, because the stock is lower.

The greater the pain, the more likely we are nearing a bottom. You must be prepared to buy into the pain for maximum gains.