John Redman
Finance 302
Monday, November 2
Trading Game: Financial Discussion
Market Backdrop
The author I chose to reference was Brad McMillan, the vice president and chief investment officer at Commonwealth Financial Network. He describes the previous months’ holding periods as slightly unstable and volatile, with a downward trend. He explains that the recent presidential election and the ever looming “fiscal cliff” were a big factor in investor uncertainty. During the month of October, the S&P 500 was down 1.85 percent, the Dow Jones down 2.39 percent, and the Nasdaq was down as far as 4.46 percent! He explains that this downward trend could be blamed on investor uncertainty over which party would control the White house and congress, and ultimately our political and fiscal future. With both parties offering different policies for more or less taxation, government spending, and entitlements to aid the economy, investors were uncertain which markets to hold or sell. Infrastructure spending or scientific research could both be markets to rise or fall, depending on our future partisan leaders. McMillan describes how government policies do not usually directly determine the long-term direction of the stock market, but within the few weeks we played the trading game, which occured during the presidential campaigns, investor’s hesitation to abrupt policy revisions made it challenging to predict market movements.
McMillan explains the relationship between our future President and Congress’ actions to the market movements due to businesses. Businesses uncertainty about who would win the election and increase or cut taxes caused them to postpone investment and hiring decisions. That, coupled with the fact that our December 3rd fiscal cliff, or the day certain tax cuts and reductions are scheduled to end, is just around the corner, more businesses and consumers are spending less. They are worried about the threat of another recession and saving more money than they are investing. Thankfully my securities did not withhold any real money, as I ended up with a loss of around $2,000. Although I saw my corporate bonds and options rise, which I sold for profit before the second submission, my remaining securities all took on losses. If I were to have held on to these past the final submission date, McMillan predicted prices would’ve increased for most securities. As I saw the SP500 fall between each submission, I find his argument for why the market prices dropped valid. It’s completely understandable that larger corporations and investors are uncertain what the future fiscal policies will yield. He stated that once the election is over, the market would stabilize, and optimistically believes market prices will be back on the rise. While I agree with him that the presidential election did hold some blame for the market prices moving to a lower horizon, I am unsure how the market will react after the December 3rd fiscal cliff. With the possibility of another recession, if I had any real money invested I would be nervous whether to sell or hold. But with more democratic members in the House of Representatives and a democratic president, hopefully the present partisan deadlock on fiscal policies can come to a compromise. Clearly if our country wants to move forward we need both political parties to reach a settlement, and until that happens I feel it could be a major factor in creating a volatile market.
Source: “Market Update for the Month Ending October 31, 2012” Brad McMillan, Vice President at Commonwealth Financial Network http://www.commonwealth.com/mktcommentary/defaultreps.html Portfolio Performance
2a. Before the second submission, I saw that the majority of my securities rise in price slightly. My corporate stocks, mutual funds, and put option prices all rose simultaneously as SP500 rose, but my stocks, and currency funds dropped. During the month of October the S&P500 dropped, but