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Congress Creates a Buying Opportunity

Written By Briton Ryle

Posted October 9, 2013

I have two kids, a 13-year-old daughter and an 11-year-old son.

They get along very well… unless they are tired and/or hungry. Then they can become monsters, mean, selfish, and utterly contrary. You can see the evil in their eyes.

In fact, they start to behave a lot like Congress and the president are right now: an absolute and inviolable refusal to agree on anything.

It’s like my kids’ heads will explode unless they do the exact opposite of what’s in their own — or anyone’s — best interest…

I remember being that age. It was nigh impossible to control that evil impulse. So, while I will raise my voice to keep the peace, I’ve never punished them in these moments. I figure they’re still a little young to be fully responsible for their actions, and they deserve a break.

Congress, on the other hand, deserves every painful and humiliating punishment conceivable, and then some.

This lot are more like suicide bombers than true statesmen, like Ronald Reagan and Tip O’Neill, for instance. O’Neil and Reagan were bitter adversaries on virtually every issue. But they respected each other.

And even more so, they respected the fact that each was elected by the American people — and that was important.

Our political leaders today have no respect for one another. Worse, they have no respect for us, the American people.

There’s really only one thing positive I can say about them, and that’s that they have given us some good buying opportunities. (How’s that for a backhanded compliment?)

In fact, that’s the point of this article today.

If you’ve been on the market sidelines, or if you’re looking to add some stocks to your portfolio, you should view the current Congress-induced weakness as a gift.

Dèjá Vu All Over Again

Who could forget August 5, 2011, when S&P downgraded U.S. debt after Congress went right down to the wire before raising the debt ceiling and stave off default?

That was another fiscal crisis that was completely unnecessary.

Trouble began the week of July 25, 2011. The S&P 500 was around 1,345 at the time. Over the span of 12 trading days, the S&P 500 had plunged 226 points, to 1,119. That is a massive 16.8% decline — in just 12 days.

There were two days where the S&P 500 was down over 50 points and the Dow Industrials were down 500 points.

On September 13, the Fed announced that it would start QE3, which helped give some support to the stock market. But it didn’t bottom until October 4, 2011, when Apple announced the iPhone 4s.

(Now, I’ll admit I have no idea why the market bottomed on iPhone 4s’ big day. I assume it was a confidence/psychology thing. Still, it goes to show you the market works in mysterious ways.)

Those were brutal, gut-wrenching days. A 16.8% drop in 12 days counts as a crash.

Of course, they were brought to us by political leaders who seem to have no problem putting the country in the exact same position again…

But if you had the testicular fortitude to step in and buy stocks while the S&P 500 languished around 1,150 for six weeks in 2011, you were richly rewarded. In my newsletter, The Wealth Advisory, we bought Boeing (NYSE: BA) in October 2011. It’s up 92% since.

Where We Stand Today

So far, the S&P 500 has fallen 69 points, from 1,729 to 1,660. That’s around 4%.

If we were to see stocks repeat their 12-day crash from July to August 2011, we’d be looking at a 290-point drop to the 1,440 level on the S&P 500.

In other words, we’d have another 220 points to go. Yikes.

But I don’t think we are going to repeat that 16.8% drop from 2011 — for a few reasons…

One, investors have already seen this story. We’ve seen Congress push it right to the brink, and then get something done. It wasn’t fun, and there were some dicey moments, but investors aren’t likely to panic to the degree that leads to a 16.8% drop.

Two, don’t forget that in the summer of 2011, we were just over two years out of the financial crisis. Memories of the crash were still pretty fresh, and there was a lot of residual fear and angst in the stock market

Investors are more confident today, and that should create a “buy the dip” mentality, as opposed to an “oh my God the market’s crashing” one.

And three, the U.S. economy is a lot stronger than it was in 2011. We’re not likely to see the institutional investors abandon ship at the first sign of trouble. They know that the trend for unemployment is up.

They also know the Fed will continue its QE3 stimulus for the balance of the year. (Now, I don’t like QE3 any more than you do, but that doesn’t change the fact that it has been supportive for stocks.)

What’s Ahead

I am expecting a very strong close to the year for the stock market.

Expectations have been lowered for growth, and that’s a perfect setup. It won’t take much for the economy to beat lowered expectations.

All we would need to see is some better-than-expected employment data and retail sales numbers, and it’s off to the races. I think the Dow could add a solid 1,000 points by New Year’s Day.

And the best part is you probably have a few days to figure out what you want to own, because there’s no deal likely in Congress until next week…

Until next time,

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.