.
.

Sullivan's Market $ense

Brian B. Sullivan, CFA, President and Chief Investment Officer, Regions Investment Management

October 16, 2014

A column to help investors gain perspective on today's market noise

Shake, Shake, Shake It Off

Are you hearing discouraging words? Is the market talking to you with crude words and accusations? Are you talking to yourself derisively? How could I be so dumb as to have so much money in the market? I knew about Crimea, Iraq, Syria, Fed tightening, North Korea and Ebola. Oh what a mistake; I knew it, I knew it, stupid me.

Is it way too late?
Was it just my fate?
Could I be so wrong?
All my money's gone?
Market's down so much.
Hey can we go Dutch?

Shake, Shake, Shake It Off

Since 2009 we have been in an elongated Bull market. The S&P 500 has nearly tripled. During that time the market has dropped at least 5% twelve times. And it has dropped at least 10% three times. Corrections of at least 5% occur on average a little less than three times a year. Corrections of more than 10% occur about every 15 months. The last 10% correction was in October of 2011, and is overdue. As I am writing this the S&P 500 is down about 8% from the peak in mid-September.

Is it way too late?
Was it just my fate?
Could I be so wrong?
All my money's gone?
Market's down so much.
Hey can we go Dutch?

Shake, Shake, Shake It Off

Investors Say…
Why do we invest in stocks? Isn't it just gambling? Every time I get the least bit comfortable something awful happens. The market goes up and down and nobody seems able to predict it or even explain it. Who am I kidding, I can't do this. I think I might give up.?

Is it way too late?
Was it just my fate?
Could I be so wrong?
All my money's gone?
Market's down so much.
Hey can we go Dutch?

Shake, Shake, Shake It Off

We invest in stocks because of the high expected return. Since 1925 US stocks have returned about 10% per year on average. Not each year, but on average. Some years had losses, some big gains. Along with the high returns comes risk in the form of volatility. The market is volatile because people are deciding to buy or sell. The underlying companies owned by the stockholders are not very volatile. Their operations improve or deteriorate at a relatively slow pace. It is the interjection of investors that makes the market volatile. Most investors believe the best way to judge a stock is by its earnings and the expected growth in those earnings. We do too. The price for a dollar of earnings is about $16 currently. This is about average and seems fair. And earnings are growing this year and probably next year. While we looked for about 7-8% in return in 2014 based on valuations and earnings growth we are not surprised by some volatility. For me, this is likely a buying opportunity rather than a meltdown. So..... Shake, Shake, Shake It Off

©Regions Bank, Member FDIC.  The foregoing represents the opinions of the author, Brian Sullivan, and not necessarily those of Regions Bank or Regions Investment Management, Inc. (RIM).  RIM provides commentary to clients of Regions Bank, an affiliated company wholly owned by Regions Financial Corporation.  The information contained in this report is based on sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the security, company or industry involved.  Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.  This report is designed to provide commentary on market strategy and the opinions expressed reflect the judgment of the author as of the date of publication and are subject to change without notice.  RIM assumes no responsibility or liability for any loss that may directly or indirectly result from the use of such information by you or any other person.  Investments discussed in this report are not FDIC-insured, not deposits of Regions Bank or its affiliates, not guaranteed by Regions Bank or its affiliates, not insured by any government agency, may go down in value, and not a condition of any banking activity.  Investment advisory services are offered through RIM, a Registered Investment Adviser.  RIM is wholly owned by RFC Financial Services Holding LLC, which in turn, is a wholly owned subsidiary of Regions Financial Corporation.

A copy of RIM's Form ADV Part 2A is available by calling 205-264-6735.

Investment and Insurance Products FDIC Disclosures