Stock Market Wrapup: Volatility Can Be Sickening

THE FINAL NUMBERS - Volatile Day Ends Higher

NEWS: I hope you were buckled in your seat today, if not you probably fell on the floor a few times. An early 200-point gain was quickly erased and a few hours later the Dow was down nearly 300 points. When the index broke below yesterday’s low it appeared it would test the 7882 hit two weeks ago. But, once again this market keeps you on your toes and rallied into the close. When the closing bell rang the Dow (^DJI) was up 172 points or 2.0%. The S&P 500 (^GSPC) added 11 points or 1.25% and the NASDAQ (^IXIC) finished with a loss of 11 points or 0.7%. At one point today the NASDAQ traded at the lowest intraday level since mid-2003, before turning around to close well off the lows.

THE BOTTOMLINE: Just when I thought the volatility was manageable on a daily basis, it strikes again. Today for torture I watch the minute chart of the ProShares UltraShort S&P 500 ETF (SDS), which is a leveraged (2-to-1) inverse ETF of the S&P 500. For every 1% move higher in the index, SDS moves 2% lower and vice versa. Within 2 hours the ETF traded between $98 and $112. It was not uncommon for the ETF to move $1 or approximately 1% within minutes. I guess it is a traders dream, but for me it nearly made me motion sick.

The point I am trying to make is that this market is not appropriate for 99% of investors. If you are a long-term investor, you must remain a long-term investor and leave the short-term trades to the professionals that want to torture themselves on a daily basis. There is no need for you to inflict the stresses of the volatility on yourself.

How Bad are Earnings?

NEWS: This week Apple (AAPL) reported solid earnings and the stock has held up well even during market weakness. Last night Amazon (AMZN) reported what many thought were disappointing earnings, but after trading lower for most the day, the stock closed slightly higher today. After the bell today, Microsoft (MSFT) beat expectations and lowered guidance less than what many had predicted. After rallying 3.7% during the regular session, the stock initially surged another 4% before giving back the gains and at last check was unchanged in the after hours.

THE BOTTOMLINE: From company to company you will find different reactions to earnings. They may look good on paper, but the stock falls or many times the opposite happens as well. The reason often times this occurs is the macro environment of the economy and global stock market. For example, if Apple reported the same earnings and the market was not currently in a bear market, I would expect to see the stock at $105, not $98.

I will not try and sidestep the issue at hand - earnings are decelerating for most companies. However, there are still a large number of companies that are increasing sales and earnings from last year even during a very difficult economy. Even the cash hording MSFT increased sales by 9% and grew earnings by 2%. Sure, they are not huge numbers, but from a behemoth like MSFT they satisfy me and more importantly should reassure investors this is FAR from the great depression that some left-wing media outlets want you to believe.

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