The Federal Open Market Committee released the minutes from its most recent meeting Wednesday, and investors didn't like what they read. Fed policymakers were inconclusive about when they'll begin to pare back on their $85 billion a month bond-buying economic stimulus program. They did say they expect it to happen "in coming months," but the market was looking for more clarity.
In response, the Dow Jones industrial average (^DJI) fell 66 points, the Standard & Poor's 500 index (^GPSC) dropped 6, and the Nasdaq composite index (^IXIC) lost 10 points.
Earnings season is near an end, and some big retailers moved on their quarterly report cards.
J.C. Penney (JCP) jumped 8 percent. Its loss was worse than expected, but the company sees some positive sales trends. Analysts say the report shows Penney will survive -– which had been in doubt this summer -– but not thrive.
And La-Z-Boy (LZB) rallied 10 percent on an earnings beat and a 50 percent jump in its dividend. But Lowe's (LOW) fell 6 percent. Its net missed expectations and the numbers show it still has a lot of home improvement to do before it can catch up to Home Depot (HD).
And food maker J.M. Smucker (SJM) lost 6 percent after warning about sales. The company, best known for its jellies, also makes Jif peanut butter and Folgers coffee. This comes after disappointing results recently from other big food makers, Kellogg (K) and Campbell's Soup (CPB).
Other Stocks of Note:
Yahoo (YHOO) rose 3 percent. It plans to buy back an additional $5 billion of its stock.
Priceline (PCLN) , up 2 percent on a Goldman Sachs recommendation. It now trades at $1,145 a share.
Tesla (TSLA) lost 4 percent on concern that sales may be slowing.
And for the second day in a row, stocks in the 3D printing field ended sharply lower. 3D Systems (DDD) and ExOne (XONE) each lost at least 7 percent, and Voxeljet (VJET) slid another 32 percent. Voxeljet traded as high as $70 a share on Monday; it closed today below $40.
What to Watch Thursday:
The Labor Department releases weekly jobless claims and the producer price index at 8:30 a.m. Eastern time.
Freddie Mac releases weekly mortgage rates and the Conference Board releases leading indicators for October at 10 a.m.
These major companies are scheduled to report quarterly results:
If You Only Know 5 Things About Investing, Make It These
After Market: The Fed Feeds Investor Fears; J.C. Penney Will Survive
Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.
Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.
Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.
The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.
Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?
If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.
Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."
Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.
Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.
Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"
Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.
Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.
Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.
You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.
This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.