Stock market wild rideThe stock-market roller coaster has been wild enough to make even the most stoic, stiff-necked investors queasy. After falling in 10 out of the last 11 trading sessions, the stock market plunged more than 500 points Thursday, making it the worst day for the Dow since Oct. 22, 2008, the day that marked the beginning of the global financial crisis. On Thursday, the index lost 4.3% -- erasing all the gains for the year -- to end at 11,384.

What's stoking the volatility? The U.S. dodged the default bullet, but not everybody is impressed. "The negotiated debt-ceiling settlement is being seen by world's financial markets as a smoke screen," says James DiGeorgia, publisher of the Gold and Energy Advisor newsletter. "No matter how many times my fellow Republicans repeat the mantra that Washington has a spending problem, not a revenue problem, the truth is we cannot make a dent in the national debt unless we reduce spending and raise revenues.

"Without swift tax reform lowering corporate and individual rates in exchange for eliminating the special-interest patchwork of tax breaks and subsidies, we're going to continue to see the national debt spiral higher and the dollar weaken."

The fact remains that the U.S. economy is not just lackluster, but flirting with recession part deux.

"Continued weakness has shown in the recent economic numbers. The [gross domestic product] at 1.3% is at a recessionary level and not nearly what is necessary to reduce the compounding effect of our deficit," says Jeff Sica, president and chief investment officer of Sica Wealth Management. "Downward revisions on economic numbers make lagging indicators even worse, suggesting what we always believed: we never left the recession."

Unemployment remains high, even though it fell to 9.1% in July, from 9.2% in June. And even worse, job cuts have surged 60%, which will boost unemployment much higher, Sica says.
Not Alone

At least the U.S. isn't alone. "The European economy is collapsing," Sica says.

Europe is addressing its fiscal and monetary problems way too slowly, DiGeorgia says. Greece, Italy, Spain and Portugal are in seriously bad shape. Banks in Europe are on the hook, he says, as are many banks throughout the U.S. that have been playing interest-rate arbitrage, borrowing at a quarter of a percent and lending to Italy for 6% and Greece for 9%, for example.

"For anyone in the know, its a catastrophe in the making," Sica says. "Bottom line: A financial crisis worse than the one that took place in 2008 and 2009 could ignite at any moment." And because many Europeans take the month of August off, the first emergency meeting to address the euro and the danger isn't scheduled until Sept. 6th, in France. Europe is a dark cloud getting darker by the day, Sica says.
Another concern is China, points out Matt Freund, senior vice president of investment portfolio management at USAA. What if the Chinese economy falters -- a scenario that seems much more likely than it did as 2010 ended? Real estate and construction have become dominant sectors in China's economy, but easy credit and speculative building may be creating a surplus in luxury apartments and other properties that sets the stage for a major correction.

A reversal of China's economic fortunes could have wide-ranging effect. It could lower demand for industrial and construction equipment, dampening revenues for the companies that make it; weaken demand for commodities, which could pressure the emerging-market economies that depend on them; and reduce overseas profits for large multinational corporations as growth stalls around the world.

What are Investors to Do Now?

A confluence of such factors are creating plenty of uncertainty. Investors are wondering what in the world they can expect from the market for the rest of this year.

"Given the debt deal, the likelihood of another stimulus package is decreased," says Steve Wood, chief market strategist for Russell Investments.

And that will slow the recovery, says John Liu, president of Firstrade, an online broker. "Without government help, the market is going to get worse before it gets better," he says. "It doesn't mean it won't get better, it will just take longer."
Sica predicts that the market will decline 15%-20% by the end of the summer. Given the economic headwinds, it's hard to envision a return to a robust and steadily growing economy anytime soon.

Investors should expect the recovery to remain choppy and uncertain, marked by below-average economic growth and periodic setbacks -- including the potential for another recession, Freund says.

For sure, the outlook suggests investors should tighten their seatbelts and brace themselves for one jolt after the other. How can you protect yourself? Here's what the pros are suggesting:

Keep your cool

"Don't panic, and keep your emotions in check," says Thomas Yorke, a Covester model manager and managing director of Oceanic capital Management. "These movements should flush out some of the more leveraged players and provide an opportunity to make some selective buys at a significantly lower levels. In situations like this, most investors are more likely to sell their best performers and hold their worst -- the trading in gold today being a prime example of that behavior. When you are ready to make some adjustments, make sure you pitch your poor performers and opt for the market leaders who apt to recover more quickly."

This is the time to re-evaluate your portfolio and determine how diversified you truly are, Yorke advises. But keep in mind that the correlations between different asset classes will converge at times like these, when the market is moving downward so strongly, he says. "You should study what classes performed best and plan to increase your exposure to them when things start to return to normal," he says. "Doing this during high-stress periods will more likely have you buying things too expensively and selling things too cheaply. Your goal should be to create the proper asset allocation and understand that
over time this more balanced approach will achieve a better 'risk adjusted' return and enable you to sleep better at night."

If you are a long-term investor, take a deep breath and stay the course, says Mark Fissel, a certified financial planner with Beacon Hill Investment Advisory. From the standpoint of price-to-earnings ratios, or stock prices compared to company earnings, the stock market is the cheapest its been since 1990. So, yes, there's great uncertainty, but that also means there's an opportunity to make money. By the time the sky is blue, the market will have already gone up, Fissell says.

Fred Dickson, senior vice president and chief investment strategist with D.A. Davidson & Co., has similar advice to investors: Find the upside. Use the recent 10% market dip to invest in high-quality stocks that have a long history of increasing dividends, he says.

Get Defensive

Sock away enough cash to fund at least three months of cash-flow needs and invest that money in a high-grade
corporate-bond mutual fund, suggests Timothy Speiss, partner and chairman of EisnerAmper.

Tuttle Wealth Management switched 50% to 80% of its portfolio to cash and Treasuries on the Monday morning before the first crash, says Matthew Tuttle, a certified financial planner with the company. He didn't predict what was going to happen, he says, but the trend of the market was indicating that was the right move. "We are now pretty much completely hedged and making nothing while buy-and-hold investors are losing their shirts," he says.

Some advisors are slicing off 20%-40% of portfolios into annuities. Depending on the annuity type, it could provide steady flows of income for years -- or even for life -- and reduce the risk that investors could run out of money. Annuities make sense because just one market loss can change how long your retirement income lasts. Especially for those who are near retirement or already retired, says Jonathan Gassman, a certified financial planner with Gassman & Kolody.
What's Your Plan for Your Portfolio?
I am taking my money out of the stock market535 (10.1%)
I am sitting tight, not touching my investments3380 (64.0%)
I am rebalancing my portfolio860 (16.3%)
I am considering alternative investments328 (6.2%)
No worries, I have no investments177 (3.4%)

Despite the recent run up in precious metals and related stocks, investors should consider allocating a significant portion of their portfolios to those investments, says James Dailey, chief investment officer of Team Financial Managers. "In my opinion, they remain underowned and have not been embraced by institutional investors, despite being in a bull market for 10 plus years," he says. "They offer important diversification benefits, as well as protection against devaluing currencies, though they are likely to be volatile."

Meanwhile, he warns investors against government bonds. "Rushing into bonds is extremely dangerous, in my opinion, given how governments are likely to respond," he say

Like your mother told you, expect the worse and hope for the best. Says Jay Ferrara, investment officer at Farmers and Merchants Trust Company, "Surviving the remainder of 2011 could be considered a success story."

Increase your money and finance knowledge from home

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Income Investing

Grow your nest-egg.

View Course »

Add a Comment

*0 / 3000 Character Maximum

120 Comments

Filter by:
Nikesha

The way I see it and maybe some others too is that last Thursday was September 15, 2008 all over again. The calm before the massive s*itstorm of economic negativity that crippled the world. The only problem now is that the economic impact is exacerbated by our continued dealings in war zones, when targets have been killed, enemy lines redrawn, and the enemy relocated to other parts of the globe.

We’re fighting two losing wars at once and no one who can do anything about it is saying or doing anything about it. They’re all off vacationing from partisan politics. But then that there is a whole other post.

http://changecomesslow.com/2011/08/08/worst-week-ever/

August 08 2011 at 2:39 PM Report abuse rate up rate down Reply
Financial Success

It will be interesting to see how the eurodollar trade pans out. Especially with the concerns of QE3 and Euro's unstable economy.

August 07 2011 at 7:01 PM Report abuse rate up rate down Reply
DEADSEA

Morris Cantonitis is real moron!

August 07 2011 at 6:26 PM Report abuse rate up rate down Reply
Morris Cantonitis

What Americans already know.
With Popcorn everyone will be watching NYC NUKED on CNN.

How to protect your portfolio against PIGGS. Butcher them and their bloodlines as Satan does.

Paying off the US Debt by siphoning, pulling and laundering from Americans and the worlds savings & portfolios by the Wall Alley and the Red Plague and associate PIGGS. Satan works hard to maintain his turf and cares ABOUT NO ONE ELSE EXCEPT HIS WALL ALLEY PIGG POCKETS.
Next week ju ju bees take market straight down, pocket the goods AND RUN like Satan’s disciples they are. Then it’s called
THE END.
THE Masturbating left hand of Satan Rises and the right hand of Good Man across the world descends.
The blue administration keeps gas prices low during the GREEN transition and the markets drop. That does not make sense and these drops are controlled by the American Wall Alley PIGG & Red Plague and EVIL Man.
Satan GIVES U A CORRECTION now WALL ALLEY PIGGS
Wall Alley & Red Plague PIGGS – Satan and his Legion ARRIVE and CONJURE U for his consummation.
Satan GIVES AMERICAN PIGGS higher than triple A. He GIVES THE PIGGS Triple 6.
Fidelity, E- Trade, Ameriprise, Wells Fargo, Hudson, Knight Securities, Federal Reserve and the list goes on. PIGG brokerages. DO any of U have any idea how much of your savings the PIGGS have taken illegally?
--------------------------------------------------------------------------------------------------------------------
Let’s see how the Wall Alley and Red Plague PIGGS do grabbing their ankles.
The anal trident of Satan steers u PIGGS down to Satan’s Ground Zero.
The Wall Alley PIGGS arrogantly taunt the World and “steal and short” their investments. The PIGGS of the Wall Alley and the Red Plague “materialize” shares and use them maliciously to pay off debt and illegally pocket the hard working investments of people throughout the world and America.
This is EVIL Man. IN 2011, 201x, 201 EVIL Man does not go too far.
The market drop was little by the run of mill shareholder. The fact is there were “no shares”. But Satans disciples in NYC generate the shares electronically and rip off the world.
Like that Russia, China, North Korea, Iran?
A Team of 4.
They score. They score.
The WORLDS #1 PIGGS and Terrorists and fugitives are found in the wall alley PIGG and Red Plague and they will get no mercy from Satan.
SaTAN WEDS u piggs FOREVER. U will have plenty of time to SPEND in Satans strip mall where your flesh gets ripped off and salted.
The RING IS FOREVER PIGGS.
dOwN to Ground Zero.
Praying may save your soul.
“NOPE - NOT U PIGGS”.

August 06 2011 at 11:40 AM Report abuse rate up rate down Reply
bxkicker1

I was lucky, I took my money out of stocks just before the market started its dive. Prevented a loss of $3,700. so far. Who knows how low market will go. I sold high and will buy low.

Also noted, "Experts" are telling clients to hold firm for the long term. What else can they say! " Take your money out". They're not loosing the principle. It has taken 7 years to get back to where I was in 2008. I may no be around long enough to recover in the "long Term".

Interest rates going up! Great it's about time the bank started paying me for the use of my cash.

August 06 2011 at 2:12 AM Report abuse -1 rate up rate down Reply
Malik Ahmad

Like someone said it right stock market is controlled by two things: one is fear, and the other is greed. Basically, this fall is a no confidence movement on Congress who fought in front of the whole world and let everyone knew that they are governed by self interest and does not care the wider US interests. We had seen the result when billions of dollars are wiped out. Why White House insists on keeping Treasury Secretary in his office. There is no doubt left that this person is a totally nincompoop. Let us show him the door. If Obama does not show him the door, people would show him the door. To me he resembles Dan Quayle, and the Bush senior did not wanted to get rid of him, and we had seen the result of this stubborness. Obama should know this historical fact.

August 06 2011 at 2:02 AM Report abuse +1 rate up rate down Reply
Dick Keane

August 3rd, 2011 Movie came out about Wall Street Counterfeiting of Stocks

here is the 28 minute movie that came out Wed night and just before Stock Market opened http://www.cmkxshareholder.com/CMKX/Blog/Entries/2011/7/31_Wall_Street_Fails_To_Deliver.html

Then Thursday the Stock market falls 512 points.

What will Monday August 8th, 2011 be. will it be Black Monday

The bank stocks are falling. This movie about Wall Street Failing to Deliver Stock certificates seems to be going Viral on the internet

Please investigate these facts

Richard Keane
http://www.SiriusNews.com/blog see the movie and read the article that connects the dots and the dates/times and facts about Wall Street Banks involved in counterfeiting.

August 06 2011 at 12:42 AM Report abuse rate up rate down Reply
jwmgrand

GET OUT YOU FOOLS .... YOU WILL BE DOWN 20 POINTS IN MINUTES ...AND IT WE TAKE YOU YEARS JUST TO MAYBE BREAK EVEN ........THE SELL PROGRAMS ARE LOADED FOR MONDAY AND IF THE BROKERAGE HOUSES START GOING OVER THE SIDE ... WE WILL SEE WIDESPREAD PANIC . GOLD COULD SPIKE AT 1700 OR HIGHER PEOPLE ARE NOT GOING TO GET THEIR SELL ORDERS IN IN TIME ... AND SUFFER HUGE LOSSES .

August 05 2011 at 11:47 PM Report abuse rate up rate down Reply
commish12804

Get ready for the bottom to completely fall out of our economy, It's gonna be 1929 all over again, so I have decreed it, so shall it come to pass. And we won't be in good shape until we vote the Obamas and their dog back to the low income ghettos where people like them belong.

August 05 2011 at 11:36 PM Report abuse -1 rate up rate down Reply
plewis213

I see that the US credit rating has been downgraded by S&P from AAA to AAplus..excuse me but are these the same people that gave me a AAA rating on Citigroup, Barclays, Bank Of America and Royal Bank of Scotland . give me a break, of which I think you just did , it broke my back as well as my portfolio...S&P should stand for Stupid and Puke.....

August 05 2011 at 9:30 PM Report abuse +3 rate up rate down Reply
2 replies to plewis213's comment
Setanta

unfortunately it doesn't and now the interst rates on the "loans"/debt will GO UP.

August 05 2011 at 10:14 PM Report abuse +1 rate up rate down Reply
housecheck76

and they gave Fannie and Freddie AAA to I believe before their collapse...maybe fannie and freddie are rated better than the US now...

August 05 2011 at 11:30 PM Report abuse +3 rate up rate down Reply