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Current Views

Keeping Your Cool When All About You Are Losing Theirs

“What is going on with the stock market, and what should I do about it?” That is a common question we are hearing these days. Even as professional investors, it is very difficult to specify why the market is acting so poorly or what triggered this recent weakness. Theories include failure of European Central Bank to stimulate the EU economy with forceful enough action, fears about end of QE3, fears of worsening global macro conditions (including in the EU, China, South America), our perception of Russia's seeming return to a Cold War-like mentality, the surge of ISIS, Ebola fears, and a sharp recent drop in many commodity prices, most notably oil.

The problem with most of these theories, other than the oil price decline, is that they have been concerns since well before the market’s recent pullback, and a price drop for oil is not by itself a bad thing. In the face of the market’s current heightened uncertainty, one thing we seek to avoid is selling stocks simply because they are going down. In our view, if sellers are going to be irrational about selling stocks, we feel that it is best that we not join in unless some fundamental changes cause us to rethink our views on a company. For any investor, at the end of the day, stocks represent ownership stakes in real businesses that should have been bought because the investor believes they have real value in the form of their assets, cash flows, intellectual property, etc. Assuming strong stock selection, we believe that value should continue to grow over time and compound, despite short term volatility in share prices.

We have been concerned in recent months that the slowdown in the Eurozone might intensify, and spread to the U.S. as it impacts multinational companies. The recent collapse in oil prices heightens this concern, as investors attempt to differentiate between a slowing global economy’s impact on oil prices versus the apparent market share battle between members of OPEC and other oil producers. Over the past several years, drops in the price of oil to its current level were relatively short lived, and did not translate into a meaningful pullback in exploration and production activity here in the U.S. However, investors are wondering whether this time may be different. We do believe that if oil remains in the vicinity of $80/barrel, some exploration and production activity here in the U.S. and perhaps elsewhere could be curtailed. 

Fears of the spread of Ebola in the U.S. are also panicking some investors, although this is hard to measure precisely. While we believe the chances of a significant number of additional cases in the U.S. caused by domestic patient-to-patient transmission are extremely low, if this were to occur it could cause a temporary cessation of travel in the U.S. – which would clearly have an economic impact, even if it were short lived. We believe this is why airline stocks have been so volatile recently.

The busy part of earnings season is underway, and it will last a few weeks as the companies in the S&P 500 report third quarter results. We remain hopeful that earnings reports will not be as bad as many stock prices seem to be discounting, and that management teams will help to clear up some of the concerns which have made investors so skittish, especially for U.S.-centric companies. Recent data points from the U.S. continue to indicate that our country is on the same macroeconomic trajectory it has been on, with improving employment trends as well as a reasonably healthy level of industrial activity.

Lately, geopolitical events have been a more important factor than usual in driving markets, and there have been many violent swings up and down in the market. Volatility is so high at present that we believe it is more likely than not to decline, perhaps after another drop in the stock market. Our Domestic Equity Team is monitoring what we believe to be key indicators of the market’s current stress, and these data points, rather than irrational fear, will guide our investment decisions going forward.  

Submitted by: John Roscoe, CFA 


This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages domestic equity, international equity, domestic fixed income, global fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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