Groundhog Day

Ever wondered who decided that a big fat furry critter called a ground hog could predict the weather? Well it originates from the Pennsylvania Dutch people. They believed that if their furry friend (let’s just call him Phil) came out of his burrow on February 2^nd and saw his shadow, that Phil would be so frightened of his shadow that he would high tail it back in his hole for another 6 weeks of winter. That’s one heck of a shadow!

However, if Phil doesn’t see his shadow because the weather outside is cloudy and dreary (kind of like Pennsylvania in the winter time), then all will be well and spring would arrive early. Sounds kind of like our modern day TV weather prognosticators: “we have a 50% chance of rain; or 50% chance it won’t. So take your umbrella, or not. Maybe a poncho, galoshes, whatever?

Of course given the stock market lately, it looks kind of like Phil is making not only weather predictions, but market predictions too. On the heels of a nice Santa Clause rally in December, early January rolls around and everyone sees their shadow. What happened??

Much of the problem is self-induced: “We haven’t had a correction in over a year”! “We are at all-time highs; the market can’t keep going higher”! “The politicians aren’t playing nice in the sand box”! It sometimes amazes me what we can talk ourselves into.

The truth is more companies are beating EPS estimates than average, but they are beating estimates by a smaller margin than average. As a result, the index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the quarter.* In addition, interest rates are on the rise, inflation doesn’t appear to be transitory, and Russia is getting an itchy trigger finger again.

So what does this mean? Well, like Phil, the market hates uncertainty. When it looks out of its burrow, it sees uncertainty and it sells. Then prices begin to look attractive because the market dropped hundreds of points, and it buys. Index rises hundreds of points and everyone gets nervous and sells. Sound familiar? Market Volatility based on fear and uncertainty.

Back in 1993, Bill Murray starred in a movie called Groundhog Day and played a TV weather man named Phil Connors. You saw it. Everyone saw it. One of my all-time favorites. Phil (no relation to the groundhog) relives Groundhog Day over and over. In fact, he was trapped in this nightmare for 12,394 days; that’s 33 years and 350 days. Yikes! Did he learn anything during his endeavor? Lots of things: self-awareness, self-improvement, and one very interesting nugget: Hanging out with the wrong people takes you down a bad path.

Doing what the masses do can be bad news. Just because the market becomes volatile, doesn’t mean you sell for the sake of selling. When you have a good plan in action, you stick with it. Are there changes that make good financial sense? Absolutely. But following a groundhog because it does and/or doesn’t see its shadow is akin to selling because the market is volatile (btw, Phil is only right between 35% and 41% of the time).

So if you are concerned with what the market is doing and whether or not changes should be made, call one of us and let’s talk through your specific concerns. If you’re comfortable with things as is, then here’s a suggestion: watch Groundhog Day (the one staring Eddy Murray, not Punxsutawney Phil). But above all, don’t sit around worrying about the daily volatility of the markets; after all, that’s my job.

Sincerely,
Frank

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James.

Past performance may not be indicative of future results.

Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

*Insight.factset.com S&P500 Earning Season Update: Jan 28,2022

Raymond James & Associates, Inc. member NYSE/SIPC.

Please visit http://raymondjames.com/smrja.htm for Additional Risk and Disclosure Information. Raymond James does not accept private client orders or account instructions by email. This email: (a) is not an official transaction confirmation or account statement; (b) is not an offer, solicitation, or recommendation to transact in any security; (c) is intended only for the addressee; and (d) may not be retransmitted to, or used by, any other party. This email may contain confidential or privileged information; please delete immediately if you are not the intended recipient. Raymond James monitors emails and may be required by law or regulation to disclose emails to third parties.

Investment products are: Not deposits. Not FDIC Insured. Not guaranteed by the financial institution. Subject to risk. May Lose Value.

This may constitute a commercial email message under the CAN-SPAM Act of 2003. If you do not wish to receive marketing or advertising related email messages from us, please reply to this message with “unsubscribe” in your response. You will continue to receive emails from us related to servicing your account(s).

Raymond James & Associates, Inc. member NYSE/SIPC.

Investment products are: Not deposits. Not FDIC Insured. Not guaranteed by the financial institution. Subject to risk. May Lose Value.