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BAM MARKET WRAP

October 31, 2014
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U's V's and W's

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WHERE WE HAVE BEEN

October was a wild month to say the least. We have gone from near panic to inane hysteria. From the highs in September, the S&P fell 7.4% only to turn on a dime and ascend (without as much as a small interruption) 7.1%. It was yet another V shaped bottom that has become the norm of this market cycle, though certainly not the norm for market historians. Generally, markets "find a bottom" by backing and filling, bouncing and retesting, ying and yang. - you get the picture - think U bottoms or W bottoms. Corrections are designed to put a healthy fear back in the market and to shake out those investors without conviction. In short, to correct the market excesses. The quick up and down over the last month did none of that and it can be argued exacerbated the complacency of most investors. Despite it all we remain in a frothy and risk filled market. Eventually, those investors that blindly "buy the dip" will be punished - probably severely.

WHERE WE ARE HEADED

Does that mean that money can't or won't be made in the coming months? Certainly not! In fact, the markets are entering into what is usually the strongest three months. Corporate buybacks, pension plan contributions, end of year portfolio dressing, consumer Christmas shopping, and a myriad of other seasonal factors provide an upside bias for the next 3 months. Additionally, though the US officially ended their third round of US market stimulus, apparently Japan did not get the memo that financial stimulus of the markets was over. Overnight Japan surprised market bourses around the world and announced another massive round of their own financial stimulus designed to stimulate the Japanese economy and stock market. Worldwide financial markets soared on the news as everyone's punch bowl was refilled. It is indeed a dangerous world, when governments become primary drivers of market activity. Earnings have been solid though not awe-inspiring and market highs are a sneeze away. All is looking good for a rally to round out the year. However, surprises in Tuesday's elections could derail some of the optimism. In fact, it is likely that with an extremely overbought market, there will at least be a small decline leading up to or shortly after the election results are posted.

HOW WE ARE DOING

Despite the roller-coaster ride over the last month, the markets are left mostly unchanged for the month. While we enjoy roller-coasters as much as anyone; when it comes to investing, we prefer less excitement. Our portfolios largely avoided the market swoon in the beginning of the month and similarly missed most of the ensuing rally. All told, our portfolios are about where we started the month albeit without the screams that goes with roller-coasters. We are very likely to begin moving back in the market over the coming few days. With an overbought market and the elections looming, we will patiently wait for a better entry point. There should be some good opportunities over the next few months.

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Tidbits
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BUMPY OCTOBER - The S&P 500 has had as much volatility during October 2014 as it had in the previous 6 months. The stock index has experienced 10 "1% or greater" change days (either daily gain or loss) since 10/01/14, the same number of "1% or greater" change days that occurred during the 6 months from April through September this year (source: BAM Research).

NIFTY NOVEMBER - November has been the 3rd best performing month for the S&P 500 since 1990. Over the last 24 years (1990-2013), the S&P 500 has gained an average total return of +1.5% during November. Over the entire period, 17 of 24 Novembers have been up. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock's weight in the index proportionate to its market value (source: BAM Research).

NO MORE DEFERRAL FOR YOU - More than 2 out of every 5 workers (41%) under age 40 that are changing jobs do not roll over their existing 401(k) but rather cash out the pre-tax plan, paying taxes and penalties in the process (source: Fidelity).

SKEWED DISTRIBUTION - The wealthiest 5% of American households owned 63% of all assets in the country as of 2013, up from 54% in 1989 (source: Federal Reserve Survey of Consumer Finances).

JUST A SINGLE PERCENT - The bottom 50% of American households owned just 1% of all assets in the country as of 2013, down from 3% in 1989 (source: Federal Reserve Survey of Consumer Finances).

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Last night, Kelly and I hosted our oldest daughter's boyfriend, the mother of the boyfriend, the grandmother of the boyfriend, and the Aunt and Uncle of the boyfriend! Needless to say, Emily is getting pretty serious with her boyfriend Jake which is not an altogether comfortable place for an overprotective dad to rest! With that said, both Kelly and I enjoy Jake and he is a fine young man. There has been some talk of engagement after their graduation in May so we shall see. Parenting is not always roller-coaster free either. Tonight, Kelly and I will be hosting a different gathering as Sarah will have 10 of her friends and Emily will bring 10 of hers for a Halloween fiesta. We have had a tradition (who knows how these things get started) of having Mexican food on Halloween. And so tonight, we will have 20 hungry teenagers enjoying fajitas, burritos, chips, salsa, etc... It will likely be our last Halloween fiesta with Emily graduating and Sarah off to college next year. I think Kelly and I will just head to Las Palmas next Halloween and reminisce. Here's hoping your Friday evening is filled with more treats than tricks.

Sam and Bo

Your financial partner for twenty years and counting because managing your money never gets old.

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Sam Bills - (865) 525-1329

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Bo Bills - (615) 371-5928

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BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management 3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

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