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Don’t Panic – The Market Will Hold

The market’s antics today say a lot about where investors are at. Futures were ugly as all get-out … but then comes the opening bell, and the markets lurch quickly back up into the green.

In short: It’s volatile out there, and we have plenty of big issues to deal with. Investors would be wise to keep this in mind, and take the long view of things — because the short term ain’t getting any clearer.

It’s human nature to take this near-term doubt as a sign of trouble. And when market bleeds red ink big-time as it did on Wednesday and Thursday with a stunning two-day slump … well, it makes you want to run screaming in panic.

Trust me, as an Apple (NASDAQ:AAPL) shareholder myself, I understand the feeling. But it’s counterproductive.

Don’t forget that the market remains up strongly year-to-date. The S&P 500 remains up more than 9% since January 1, 2012, and up 12% in the last 12 months.

This despite a lurch down in May and June where the market lost more than 8% in a month. If you punched out then and never came back, you missed out on the lion’s share of the 2012 rally.

So don’t panic. We have been here before … in more ways than one.

Nothing Has Changed

The reality is that despite a nearly 6% decline for the S&P 500 index since October 17, nothing has changed in the last few weeks.

Well, besides Barack Obama winning a second term … but frankly, though Americans refuse to believe it, any sitting president has very little influence on the economy these days beyond simply being the head cheerleader.

Anyway, let’s not get too bogged down in party politics right now. Just take a look at things the way they were as of early October:

And here’s how things look in early November:

  • Q3 earnings have proved they do indeed suck out loud
  • America still faces political gridlock despite/because of Obama’s re-election
  • Iran is firing at unmanned drones.
  • Europe is a mess for far too many reasons to get into here.

So I ask you, what has really changed?

Yeah yeah yeah — Obama is back. But in case you’re unfamiliar with the timing of an election, he would have been here anyway until January 20. This fiscal cliff thing would have been under his watch regardless.

Also, do you really want to give Barack that much power over the stock market? He’s the chief executive anyway, and beyond veto power and holding press conferences he has nothing to do with the fiscal cliff debate. That’s up to our dysfunctional Congress.

Furthermore, Congress hasn’t really changed. Yes, the Democrats picked up a few seats but the GOP remains firmly in control of the House, and the left has nearly the same slim majority in the Senate. The legislative picture is very much the same.

Signs of Life

Let’s forget about politics for a minute, because that’s an open wound for many conservatives and cause for gloating from some on the left. Instead, let’s just look at economic data where signs of life are emerging:

  • The jobless data, while not improving rapidly, remains moving in the right direction.
  • Housing also seems to have bottomed — and homebuilders from Pulte (NYSE:PHM) to Toll Brothers (NYSE:TOL) are all up remarkably year-to-date.
  • Consumer confidence closed October at a five-year high.
  • There’s even talk that the China slowdown is turning into a China rebound.

Not bad, all things considered. And certainly no cause for panic.

Ugly Earnings Are the Real Story

The biggest overhang, of course, is earnings. Because no matter what these indicators say we are seeing a fundamental contraction in corporate profits and top-line revenue.

After all, this is how companies succeed: by selling more and making more money. If that’s not happening, then it’s natural for stocks to get held back.

FedEx (NYSE:FDX) saw its first earnings decline since 2009. McDonald’s (NYSE:MCD) posted its first monthly same-store sales decline since 2003. General Motors (NYSE:GM) profits dropped almost 15%.

The markets were probably overdue for a washout after a roaring rally year-to-date and an obvious slowdown in earnings. So let’s not read too much into the recent headlines — even if the volatility right now is a bit unnerving. Panic is never a good investment strategy.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but no other stocks named here.

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