Category Archives: NASDAQ

Global Stocks Lower After Brussels Explosions

Major Stock Indexes

4:09 PM EDT 3/22/2016

Last Change % CHG
DJIA 17582.57 -41.30 -0.23%
Nasdaq 4821.66 12.79 0.27%
S&P 500 2049.80 -1.80 -0.09%
Russell 2000 1096.95 -1.63 -0.15%
Global Dow 2315.94 -7.42 -0.32%
Japan: Nikkei 225 17048.55 323.74 1.94%
Stoxx Europe 600 340.30 -0.52 -0.15%
UK: FTSE 100 6192.74 8.16 0.13%

 

Currencies

4:09 PM EDT 3/22/2016

last(mid) change
Euro (EUR/USD) 1.1224 -0.0018
Yen (USD/JPY) 112.28 0.33
Pound (GBP/USD) 1.4214 -0.0154
Australia $ (AUD/USD) 0.7623 0.0045
Swiss Franc (USD/CHF) 0.9724 0.0025
WSJ Dollar Index 87.26 0.10

Futures

3:59 PM EDT 3/22/2016

last change % chg
Crude Oil 41.48 -0.04 -0.10%
Brent Crude 42.54 0.31 0.73%
Gold 1248.5 4.3 0.35%
Silver 15.895 0.048 0.30%
E-mini DJIA 17497 -31 -0.18%
E-mini S&P 500 2041.75 -1.00 -0.05%

Government Bonds

4:08 PM EDT 3/22/2016

price chg yield
U.S. 10 Year -6/32 1.939
German 10 Year 7/32 0.215
Japan 10 Year 3/32 -0.101
 
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At the close 3/3/2016

Major Stock Indexes

4:13 PM EST 3/3/2016

Last Change % CHG
DJIA 16943.90 44.58 0.26%
Nasdaq 4707.42 4.00 0.09%
S&P 500 1993.40 6.95 0.35%
Russell 2000 1075.96 10.28 0.96%
Global Dow 2241.14 22.44 1.01%
Japan: Nikkei 225 16960.16 213.61 1.28%
Stoxx Europe 600 339.42 -1.55 -0.45%
UK: FTSE 100 6130.46 -16.60 -0.27%
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Before the Bell: 2/26/2016 (Thursday’s Close)

 

Major Stock Indexes

9:15 AM EST 2/26/2016

Last Change % CHG
DJIA 16697.29 212.30 1.29%
Nasdaq 4582.20 39.60 0.87%
S&P 500 1951.70 21.90 1.13%
Russell 2000 1031.58 9.50 0.93%
Global Dow 2173.29 10.51 0.49%
Japan: Nikkei 225 16188.41 48.07 0.30%
Stoxx Europe 600 332.06 5.52 1.69%
UK: FTSE 100 6092.74 79.93 1.33%

 

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Passive Investing and the Risk of Bubbles.

“Passive Investing” has become very popular with investors as some financial writers and the index industry tout the benefits of buying an index fund. It’s said to be the kind of “set it and forget it” investment strategy that appeals to people who have limited investment experience and believe they are doing both the “smart” and “safe” thing.

But there is a downside that people who are not familiar with index funds are not aware of. It’s what happens when an investment “Bubble” breaks.

Legg Mason wrote an informative white paper on this subject recently. We want to quote some of what they said.

The end of a market bubble is never pleasant, but it can be especially painful for investors in passive strategies that track major stock indexes.  A key reason: those indexes tend to increase the weighting of rapidly rising sectors as bubbles inflate, setting up investors for a bigger fall.

When sector bubbles collapse over shorter time periods, the overweights can impact major market indexes as well. Example: as the Internet bubble of the late 1990s collapsed, the weight of the S&P 500 Info Tech sector, one of the ten sectors represented in the S&P 500, shrank by more than half, from 33.3% to 15.4%, as the sector generated a cumulative loss of 73.8%. The same effect could be seen during the global financial crisis, with financials plummeting nearly 80%.

Investors investing $1000 in the very popular index that tracks the NASDAQ market would be investing roughly $120 dollars in Apple, $90 in Microsoft and $50 in Amazon. More than $500 of that investment would go into only 10 stocks. This is an illustration of the fact that the investor who believes that buying an index provides broad diversification may find out that this may not be the case. While buying an index is not necessarily a bad idea, it should be done understanding how indexes are constructed and the amount of risk it involves.

These are only a small sample of the kinds of distortions reflected in passive capitalization-weighted indexes, whose construction forces them to overweight sectors as they become more popular with investors. When added to the well-documented tendency of investors to herd toward supposedly “hot” opportunities, the damage to investment returns can be substantial.

The core issue, however, is not that every success contains the seeds of its own destruction. Rather, it’s that using conventional passive, index-based investing as the center of a balanced investment strategy can introduce unexpected — and unwanted — volatility into a supposedly conservative portfolio, at just the moment when investors may be seeking refuge. And that’s the real trouble with bubbles

The hidden dangers of investing, even in the most common strategies, are just another reason to get professional advice.

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