Strategies For Today’s
Market Environment
Rebecca Gaylor, CFP ®, CFS
ACTIVE MONEY MANAGEMENT
Securities offered through JW Cole Financial , Inc. Member
FINRA/SIPC.
Advisory Services Offered Through Jonathan Roberts
Advisory Group
J. W. Cole Financial, Inc. is not affiliated with Genworth
Financial Wealth Management.
47223
10/22/08
This market analysis is provided by Genworth Financial Wealth Management.
Overview
• The challenges in the market today, at times, seem
overwhelming and insurmountable.
• Many of the market events that seem so unique today,
however, have happened before in our economy.
• We can draw many parallels between today’s market
environment and historical events.
• We’ve been through similar scenarios before, and the
markets have been resilient.
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Review of Historical Shocks
• We reviewed the most impactful market shocks over the
last 30 years to draw comparisons.
• We examined investment bank failures, bank implosions,
corporate and municipal bankruptcies, wars, scandals, and
much more.
• Two themes emerged from analyzing these events and
subsequent market movements:
• Nothing is unique – the recent events have parallels to
past events
• Markets have tended to weaken, but in relatively short
order have absorbed and moved on
• Let’s examine these market events in more depth
Past performance is not indicative of future results.
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Major Market Shocks Since 1970
The history of the stock market is full of shocks to the system. But as this
graph of the Dow Jones Industrial Average shows, the market has survived
the changes over the last 30 years and thrived.
Asian Crisis
Dot Com
Bubble
1987 Market
Crash
Arab Oil
Embargo
Chrysler
Bailout
Source: Google Finance, September 2008. Dow Jones Industrial Average returns are shown with reinvestment dividends. You can not invest directly into an
index. Past performance does not guarantee future results.
The Dow Jones Industrial Average (a registered trademark of Dow Jones & Co., Inc) is an unmanaged index composed of 30 common stocks
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How do the Markets React to Financial Shocks
Event Name
Event Type
Key Date
Months to Market
Improvement*
Penn Central Bankruptcy
Bankruptcy
Jun-70
7
Lockheed near bankruptcy
Near Bankruptcy
Feb-71
0
Arab Oil Embargo
Financial Crisis
Oct-73
12
Watergate/Nixon Resignation
Political Crisis
Aug-74
2
Franklin National Bank Collapse
Bankruptcy
Oct-74
2
NYC Near Bankruptcy
Near Bankruptcy
Oct-75
1
Chrysler Loan
Near Bankruptcy
Sep-79
2
President Reagan Shot
Political Crisis
Mar-81
1
Lombard-Wall Inc. Repo Failure
Financial Crisis
Aug-82
1
Latin American Debt Crisis
Financial Crisis
Aug-82
1
Continental Illinois
Bankruptcy
May-84
2
Drexel Burnham Lambert
Bankruptcy
May-86
2
S&L Industry Crisis
Bankruptcy
Jan-87
1
US Stock Market Crash of '87
Financial Crisis
Oct-87
2
Gulf War I
Political Crisis
Aug-90
4
Kidder Peabody
Financial Crisis
Oct-94
1
Orange County Bankruptcy
Bankruptcy
Dec-94
1
Barings Bank Collapse
Bankruptcy
Feb-95
0
Asian Financial Crisis
Financial Crisis
Jul-97
2
Long Term Capital Management
Bankruptcy
Aug-98
1
Impeachment of President Clinton
Political Crisis
Dec-98
2
Dot Com Bubble Burst
Financial Crisis
Jan-00
30
9/11 Terrorist Attacks
Political Crisis
1-Sep
12
Enron Scandal
Bankruptcy
1-Oct
1
War in Iraq
Political Crisis
3-Mar
1
Amaranth Advisors
Bankruptcy
6-Sep
0
Median Time to Recover – 1.5 Months
Average Time to Recover – 3.3 Months
As the table indicates, the
market generally begins to
improve in 1 to 4 months
after the event.
* Months to market improvement indicates
the approximate amount of time that
elapsed until the S&P 500 Index either
recovered to its level prior to the event, or
until the S&P 500 Index began a path of
sustained improvement following the event.
You can not invest directly into an index. Past performance
does not guarantee future results.
The S&P 500 (a registered trademark of the McGraw Hill
Companies) is an unmanaged basket of 500 stocks that
are considered to be widely held and thus believed to be a
good indicator of overall market performance. This index
of common stocks is weighted by market value.
Source: Analysis by Bob Bannon, CFA, Chief Risk Officer, Genworth Financial Wealth Management, September 2008
Market Comebacks
During the last century, the stock market has generally bounced back after
turbulent years. As illustrated below, market returns (as shown by the S&P
500 Index) have been very favorable after consecutive down years.
200%
148%
150%
100%
100%
67%
57%
50%
33-36
42-45
75-76
03-07
0%
29-32
39-41
-34%
-50%
73-74
00-02
-42%
-40%
-71%
-100%
Great Depression
World War II
Oil Crisis
Internet Bubble
Source: JPMorgan Asset Management. Market returns represented by the S&P 500 Index returns (price only). Returns reflect calendar year
returns and not peak to trough. Past performance is not indicative of future results. Data as of 12/31/07.
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Conclusion
• The hype that accompanies major market movements can
be overwhelming – especially with today’s 24/7 news
channel coverage.
• Markets over time, however, have been incredibly efficient
and resilient.
• We believe the markets will bounce back.
• While it might be emotionally difficult, we feel cashing out
your portfolio now may be an unwise course of action.
• We still hold the belief - Invest for the long-term and avoid
selling in a panic.
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