Buying Time in a Volatile Market

With 3 percent and 4 percent swings in the stock market seeming almost commonplace these days, it appears investing won’t be for the faint of heart anytime soon. In the last three months, the Dow Jones Industrial Average has gone from roughly 12,500 to 11,100 with a handful of heart-monitor-like dips and jumps of 500 points or more tracing the mood of the moment.

Local stocks of interests – O’Reilly Automotive, Leggett & Platt Inc. and Jack Henry, for instance – have been along for the ride as well, leaving financial advisers and common investors wondering if hard-fought gains in the market during the last two years are all for naught.

Springfield-based O’Reilly Automotive (NYSE: ORLY) has weathered it well, riding atop its 52-week range of roughly $50 to $71 per share.

A particularly active stock, since July 5, O’Reilly shares went from $66 down to roughly $57 before climbing to more than $70.

In the last year, Jack Henry (Nasdaq: JKHY) shares have fluctuated between $24 and $34, landing just shy of $30 as of press time. In August, its stock has raised nearly five points after falling roughly seven in July.

Leggett & Platt Inc. (NYSE: LEP), however, has moved little, posting a 52-week range of $21.15 to $21.58 per share.

Steve Mullins, associate professor of economics at Drury University, considers the skittish market and recent downward trend a reaction to investor concerns about a growing European debt crisis and a surprising lack of domestic job growth.

“The forecasts for growth of the (gross domestic product) were downgraded significantly from between 2.5 percent to 2.8 percent to below 2 percent recently, and any surprising downgrade in the expectation of the growth of the economy is going to worsen profit expectations and drive stocks lower,” Mullins said.

“And second, the European debt crisis and the problems in Greece, Ireland and spreading to France are now seeming more prevalent and less contained than otherwise thought. And the U.S. economy is susceptible to anything that would reduce growth in the EU,” Mullins added.

He cautions against cashing in prematurely, even when it’s difficult to ride the waves.

“I’ve actually been buying a little bit here in the last few weeks because I think the downward reaction is exaggerated,” Mullins said. “But I don’t know. If I could tell you with any degree of certainty about these market moves, I’d be teaching at Drury only because it’s fun and not because I need the income.”   

A September New York Times analysis of the Standard & Poor’s 500 stock market index since 1962 found market volatility has increased widely during the last 10 years. The Times found price rate changes of 4 percent or more during intraday sessions have occurred six times as often since 2000 than they did on average in the four decades leading up to the Millennium.

Mullins has noticed that substantive gains in the market since 2000 were offset by downward trends. However, historical Dow Jones industrial average data shows that the stocks went up more than tenfold between 1980 and 2000.

While big trends may be easy to discern, the day-to-day action on Wall Street is less rational.

“Two things drive the stock market: greed and fear,” Mullins said. “The experts will tell you that any particular stock price at any particular moment has in it all the available information about the underlying asset, and then what drives the market up or down are surprises, good or bad, either about the particular stock or the economy in general.”

Sylvia Propps, 3M plant manager in Springfield, said her company’s stock is typically pretty stable, despite the market’s recent downward trend. At the plant level, Propps said stock considerations don’t impact business, which is focused on delivering adhesive products to its customers.

She doesn’t often check to see how her shares are performing, “unless I’m getting ready to make a big purchase, a new car or something like that.” Generally speaking, she sees 3M stock as a stable investment and tries to leave it alone. She said it is out of the ordinary for her to answer questions from employees unless they are planning to sell.

Dennis Heim, a partner with Springfield-based financial services firm Heim, Young & Associates, remembers March 9, 2009.

“That’s when the market hit a bottom the last time. And there was no one that you could have talked to on March 8 who would have said this is a great buying opportunity,” he said.

Contrary to public reaction, Heim said market dips can present opportunities.

“Any time there is volatility, to the downside in particular, people are concerned about it,” he said.

“Too many people want to be all in when the market is going up and all out of the market when it’s going down,” Heim added.

For Propps, the daily or weekly changes to her portfolio are not worth the worry.

“I figure it’s money that I should be investing for the long-term, not the short-term, and so I don’t look at the short-term fluctuations,” Propps said. “I sleep easier that way.”[[In-content Ad]]