Today, supposedly on remarks made by Alan Greenspan today in Hong Kong that a recession is probable,  the Dow Jones dropped 546 points in intra day trading to close down 416 points.  This was the largest drop in the Dow in 43 months, which represented a 3.5% decline.  Stock markets around the world followed the dive in U.S. stocks with similar drops.

While a drop like this is definitely unusual, it is not unprecedented.  While it was the 7th largest drop in market history, in 2003 there were several days the S&P 500 and the NASDAQ experienced similar moves of over 3% and in  2002 seven percent of all business days saw moves 3% or more on the S&P 500. 

In a message sent today by Leuthold Funds, they state that today’s drop, "does not mark the end of the cyclical bull market."   Regardless, markets rise and markets fall, and trying to time them is difficult, if not impossible.   Leuthold says that the drop does not imply an end to the bull market  nor a beginning of a recession.  They anticipate markets to stabilize this week with a significant recovery next week.  Further, Leuthold says they won’t be reducing their equity exposure and probably will increase them.

As for KFG client portfolios, our "average" client is 40% to 70% in equities.  Most other asset classes were up slightly to down about 1%, so the overall impact of the one day stock market drop may be a 1% to 2% drop in the total portfolio.  While we never like to see a decline, they are inevitable.

KFG will not be making any asset allocation changes to portfolios because of this market move. We’ve had five really good years of above average returns.  At some point in time a reversion to the mean is to be expected.