Market Selling: What the Media Doesn’t Tell You
When you see “market selling”, what immediately comes to mind? Is it good news or bad? Most people get some sort of vision of Chicken Little calling out that the financial sky is falling and worry that they are losing money hand over fist with no end in sight. It’s no surprise, since with every market move the 24/7 media points a finger to name the blame. Oftentimes they accurately cite market behavior with explanations such as missed corporate earnings expectations, inflation data coming in hotter than expected, retail sales are down, or energy prices are up, among other things. Then again, there’s politics, which is played both ways, and given far more culpability and even credit for market contribution than our politicians deserve. We all know sensationalism sells, and more clicks per headline is what drives media profitability.
What the media doesn’t tell you though is that there are legitimate reasons for market selling that are expected and some are even good! Have you ever wondered how many portfolios are set for regular rebalancing? Pension funds, endowments, corporate investment accounts, insurance portfolios, and even our own individual investment accounts. How many are set to quarterly, semi- or annual rebalancing? For example, if your investment policy statement lays out a 70/30 portfolio whereby 70% of holdings are invested in equities, when we have a strong run in the stock market that 70% will drift higher. Now, your equity portion could be 76%, 79%, 82% or another percentage of your portfolio. Automatic rebalancing sells the excess equities to rebalance back to your 70/30 mandate. Win-win, as your portfolio did what it should: made money when the stock market was strong and “sold high” as we all know we are supposed to do. Why doesn’t the media report this good news? “June 30th semi-annual rebalancing and profit-taking hits the markets strong,” would be a great headline!
How many retirees take regular distributions from their portfolios, doing exactly what they should be doing? Our office alone sees a volume of respectable portfolio withdrawals going out on the first and fifteenth days of each month as regular monthly retirement “paychecks” to our clients enjoying their golden years, in addition to the distributions throughout the month because our clients are happily using their money. What about hitting investment targets? How many market sales happen because we’ve hit a set target in an investment triggering the sale, taking the profit?
Then, there’s a phenomenon mentioned in our LPL morning research calls when it is about to happen, called “quadruple witching” days, on the third Friday of every quarter when stock index futures, stock index options, stock options and single stock futures all expire simultaneously. When all of these contracts line up for expiration, elevated levels of volatility happen due to the high volume and often times, portfolio managers step in to take advantage of the higher liquidity in the market to trade larger positions, further adding to the market volume and sometimes causing outsized market moves.
We are blessed to live in times where ordinary people can participate in financial markets. The tradeoff sometimes, is the anxiety that goes along with it. Just remember, the next time you see headlines about market selling, pause for a moment and ponder whether it’s all bad news….. or maybe there is more to the story that the media doesn’t tell you.
LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com or SchulferAndAssociates.com
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
