Baird analyst says October stock market swings are to be expected

The U.S. stock market is fluctuating wildly in October, but that’s a healthy sign, according to Bruce Bittles, chief investment officer of Milwaukee-based Robert W. Baird & Co. Inc.

After losing 334 points Thursday, the Dow Jones Industrial Average stabilized this morning.

“Volatility has returned to the stock market in October. Historically, high levels of volatility are bullish because it indicates fear; low levels of volatility are considered a negative because it is an indication of investor complacency,” Bittles said. “Also encouraging is that the stock market seasonals will turn positive near the end of the month and become a significant tailwind beginning in November…There is no shortage of investor concerns in the current environment including worries that the weakness in the global economy will eventually impact the U.S. economy. To this point, there is no evidence that the domestic economy is being negatively impacted by the weakness in Europe, Japan and China. The U.S. economy is being bolstered by increasing capital investment. This is much more important than a consumer-led economy that is suspect because of the low savings rate and the lack of wage growth.”

Bittles also has little fear about inflation.

“Despite the 4.6-percent rise in GDP in the second quarter and forecasts of 3.0-percent growth in the third quarter, inflation is conspicuous by its absence,” Bittles said. “The 8-percent drop in oil prices the past four weeks argues that inflation will remain low for a considerable period of time. The plunge in energy prices is a net positive for consumers as it will work like a tax cut in providing additional disposable income. The sharp rise in the dollar is also deflationary. The concern over the dollar is that a strong currency will hurt corporate profits. The dollar, however, will help importers, such as retailers and small domestic industrial manufacturers. The strong dollar also encourages foreign investors. Overall, we see the strong dollar as a net positive for the economy and likely to keep the Fed from raising rates anytime soon…Seasonal patterns continue to anchor the market with September and October in 2014 playing their historical role as trouble months for stocks.”

The largest local gainers this morning were Quad/Graphics Inc. (up 49 cents to $18.75) and Wisconsin Energy Corp. (up 44 cents to $45.32). The largest local decliners this morning were Magnetek Inc. (down $2.23 to $28.48) and Rockwell Automation Inc. (down $2.02 to $100.93).

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