Streetwise for Sunday, October 24, 2021

Did the last two or three weeks on Wall Street scare you? Did you once again begin to wonder if Wall Street was the Street, you should be on?

Regrettably, if your nerves were rattled by the Street’s volatility and downward momentum, you were not alone. Based on the phone calls I received, you were in good company.

As Barron’s pointed out in a recent article, the S&P 500 fell 5.2% from its all-time closing high of September 2, to its lowest close of the pullback on October 4.

Analysts were revising earnings estimates lower, as supply chain constraints and rising wages hampered companies' ability to meet sales expectations and pressuring profit margins.

OK, we had a bit of downturn. However, it was nothing to panic about. As Barron’s is quick to point out, the stock market seems to have absorbed it all and is moving higher again,

The S&P 500 is up almost 4% from its recent bottom. At 4,468, the index is now trading above its 50-day moving average of 4,438, a key technical level which illustrates the index's larger uptrend.

If stocks perform well after surpassing that level, it shows that investors are confident that paying the current price for stocks is worth the risk.

Two factors are driving the rebound. Earnings have exceeded estimates by a wider margin than most thought was possible. And bond yields have dipped slightly.

Yes, I know a large amount of data is still forthcoming in the form of earnings. Furthermore, there are economic challenges ahead, while the S&P 500 remains below its all-time high.

Yet, it seems that times never change. From my perspective I like to divide the naysayers into three categories.

The first group will never acquiesce to the idea of investing on Wall Street. A degree of sarcasm is often embedded in their words. To exploit an equine metaphor, you can lead a horse to water, but you cannot make it drink.

Then there are those whose faces blanche when discussing the Street, as they put forth a diatribe on how Wall Street is akin to Las Vegas. And am I aware of the volatility on Wall Street?

No sir, their money is staying in CD’s. Tactfully, I do not point out that after taxes and inflation, the return is likely negative.

Finally, there are the well intentioned who have blindly invested in a myriad of investments and cannot wait to tell you about their perspicacity to that end.

Unfortunately, their knowledge about investing was often gained from a glossy marketing brochure or a persuasive sales presentation. The hype from these investments is always high but not necessarily the performance.

Investing does mean having to deal at times with a diatribe of subjective and often incorrect statements by supposed experts.

In discussing a well-known company, a brokerage firm downgrades the company’s shares to “sell” from “neutral”, and said it expected the company to face “fundamental deterioration” in the next six to twelve months. Of course, they were extremely wrong about the company, which subsequently went on to see new highs in both performance and share price appreciation.

The idea that American industry has exhausted its pipeline of potential reminds me of the often-quoted tidbit, stated back in 1843 when it was suggested that the government close the patent office because it was thought that everything that could be invented had been.

Yes, the statement is a myth, despite its popularity. In his 1843 report to Congress, the then Commissioner of the Patent Office, Henry L. Ellsworth, included the following comment: "The advancement of the arts, from year to year, taxes our credulity and seems to presage the arrival of that period when human improvement must end."

Ellsworth never intended to denigrate the Patent office. Moreover, the number of patents grew from 435 in 1837 to 25,527 in 1899. In the one year between 1898 and 1899 there was an increase of about 3,000.

Of course, Napoleon is said to have told Robert Fulton: "What sir, you would make a ship sail against the wind and currents by lighting a bonfire under her decks? I pray you excuse me. I have no time to listen to such nonsense."

Lauren Rudd is a Managing Director with Raymond James & Associates, Inc., member NYSE/SIPC. Contact him at 941-706-3449 or Lauren.Rudd@RaymondJames.com. All opinions are solely those of the author. This material is provided for informational purposes only, is not a recommendation and should not be relied on for investment decisions. Investing involves risk and you may incur a loss regardless of strategy selected. Past performance is no guarantee of future results.