3 Signs the Dow's Drop Is Just a Dip

Everyone's worried about a full-scale crash, but there are reasons to think this is just a normal correction.

Apr 7, 2014 at 9:03PM

The Dow Jones Industrials (DJINDICES:^DJI) fell 166 points Monday, following up on Friday's similar losses and getting many investors fearful about the future of stocks. With the popular "sell in May" indicator just a few weeks away from triggering its seasonal signal to get out of the stock market, the mood on Wall Street has gotten a lot scarier in just the past week. But there are a few reasons not to lose hope about the survival of the five-year-old bull market for the Dow Jones Industrials. Let's take a look at them.

1. Volatility isn't making investors panicky.
Ordinarily, measures of volatility soar as the Dow Jones Industrials enter a correction. So far, we haven't seen a huge ramp-up in fear among market participants, as the S&P Volatility Index (VOLATILITYINDICES:^VIX) remains at subdued levels well below its peaks in January and March.


Some will look at today's 11% jump in the so-called Fear Index as evidence that the Dow Jones Industrials are headed back downward toward the year's lows. But when you look at the iPath S&P 500 VIX ST Futures ETN (NYSEMKT:VXX), you see a much different picture, as that volatility-tracking ETN gained only 2% today. The iPath ETN tracks futures rather than spot volatility, and the much-smaller move in volatility projections just a month or so into the future shows just how confident traders are that this downward move will be short-lived. Of course, that's no guarantee that complacent investors won't end up being wrong, but for now, it's providing some underpinning for the Dow Jones Industrials.

2. Investors still trust defensive names.
Even amid the Dow's drop today, Coca-Cola (NYSE:KO) and Procter & Gamble (NYSE:PG) fulfilled their typical defensive roles, rising about 1% each. In a full-blown panic, that doesn't typically happen, as even defensive names get carried out to the woodshed along with the rest of the market.

Coca-Cola's and Procter & Gamble's gains are especially noteworthy given their struggles to produce growth. Between industry-specific issues and global macroeconomic factors holding back their sales gains, both Procter & Gamble and Coca-Cola aren't at their strongest right now from a fundamental standpoint. Yet despite fairly hefty valuations, investors have the confidence to buy their shares even at a potential inflection point for the Dow Jones Industrials. That's a positive from a sentiment standpoint.

3. There still aren't great alternatives.
Beyond the Dow Jones Industrials, there are relatively few investments that look terribly attractive right now. International stock markets fell even more than the Dow did, as geopolitical fears weigh more heavily on Europe due to its proximity to Ukraine and Russia. Bond prices rose as yields fell, but few expect that trend to stay intact much longer as the Fed keeps reducing its bond purchases. Even gold failed to deliver gains today, and with low interest rates failing to give income investors much reason to look elsewhere, stocks -- especially those that pay dividends -- are giving investors what they want the most.

Be careful
It's smart not to panic, but it's also smart to put yourself in a position where you're least likely to panic later. That means assessing your risk tolerance and potentially rebalancing your portfolio before the next correction in the Dow Jones Industrials happens. That way, you'll be emotionally ready to survive an extended downturn for the Dow and even get yourself prepared to buy bargain stocks if the opportunity arises.

3 stocks poised to be multibaggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multibagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Procter & Gamble, owns shares of Coca-Cola, and has options on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers