Daily Bullets….for July 8, 2014

·         “Stocks Retreat as NASDAQ Tumbles”…….Nasdaq is now off 2% from its recent cycle high of 4485. Euro 600 index is down 1.4%. Pressure on social media and biotech stocks today. Valuations considered “lofty” by some pundits.

What’s the point? We know the media loves sensationalist headlines for obvious reasons. A decline of 2% in two days is actually well within the long-term average interday volatility of about 0.97%. The market just completed one of the longest stretches of below average volatility in many years. One concern about this low volatility is this level of complacency may be reflecting a high level of both confidence and consensus thinking, which we think is problematic. As we mentioned in our recent quarterly investment meeting comments, we believe a number of factors point to an increasing risk of a market correction (defined as a pullback of 10% or more). Corrections are normal within bull markets and can be healthy for the market because they help to contain excesses. Despite increasing risk of a correction, the longer-term fundamentals remain decent reflected primarily in growing corporate earnings, moderately low inflation, and deliberate and highly transparent global central bank monetary policies. How can one best navigate uncertain markets? 1)Maintain a diversified investment portfolio that includes multiple asset classes (such as stocks, bonds, real estate, commodities, etc). Diversified portfolios such as this have shown to deliver superior risk-adjusted returns over the long haul. And 2) maintain a disciplined investment strategy in order to avoid the negative effects or temptation of trying to time the market. Link: http://money.msn.com/business-news/article.aspx?feed=BLOOM&date=20140708&id=17758067