Friday was a bit of a surprise with the DOW down nearly 400 points (2%).
It would seem that we have the Federal Reserve to thank for the bit of volatility.
Depending on the Fed's comments on Monday, we might get a bit more of what we saw on Friday.
You should be ready with your buy lists as this could easily turn out to be another Fed head fake.
Introduction
The Federal Reserve (a.k.a. the Fed) is clearly feeling the need to a) warn investors that a Fed funds rate rise is in the making, or b) cool down what they believe to be an overheated market.
On Friday, Boston Fed President Eric Rosengren, who is a voter this year on the Fed's interest-rate setting board, on Friday said the U.S. central bank could resume gradual rate increases as the risks facing the economy are more in balance. In addition, Fed Governor Lael Brainard unexpectedly announced she'd deliver a speech Monday. The markets responded with a swoon on Friday essentially falling all day with the DOW closing almost 400 points lower. Depending on Brainard's speech, we could see more of the same on Monday.
Are You Ready for Monday?
There are a couple of ways to handle Monday as an investor. One option is to have a seat and watch how everything plays out. The other option is to use the potential volatility as an opportunity to pick up a few shares at much better valuations. In other words, take a lesson from Warren Buffett.
Clearly there was some fear gripping investors on Friday. If Brainard comes out hawkish on raising rates, the market is very likely to respond as it did on Friday. So, we may have the opportunity to put Warren's sentiment to work on Monday. In order to make the most out of Monday, if indeed the market tanks again, you really need to have a list of stocks that you are ready to buy if the price gets right. I usually have a short list of stocks that I'm ready to buy during market corrections and dips. I previously wrote an article for Sure Dividend on the subject of dollar cost averaging versus buying on the dips.This approach has worked out very well for me as I generally have the patience to wait for the bigger dips and/or corrections to make significant additions to my portfolio. A good example of having initiated a new portfolio at a time when the market was falling is the series of articles I wrote on Seeking Alpha entitled " If I Had To Build An Income Portfolio Today". It is interesting if nothing else that I initiated that portfolio almost exactly one year ago. Maybe there is something to the idea that September is typically the worst month for the stock markets. So, what does my list for Monday look like? The list below shows my selections and the likely limit prices I plan to set after seeing how the market responds to Brainard's speech.
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