There were certainly a lot of news headlines during the holidays about the market. This left some of us feeling like the Grinch disrupted our Christmas cheer! Since December, we’ve seen a lot of volatility in the stock market, including a 1,000-plus point drop for the Dow Jones Industrial Average (DJIA). While such market drops are dramatic – and disconcerting – it’s important to note that nothing unprecedented is going on.
So, what is going on?
Interest Rates are Rising– This scenario hits the earnings of tech stocks particularly hard. And these are the very companies that have been driving stock market gains.
Return of Volatility–Since the recession of 2008-2009, the stock market has experienced unusually low market volatility. The increased volatility in the last couple quarters is much more normal of longer-term market trends.
Investors are Cashing in– Anticipating a high-rate environment, many investors are selling their holdings and taking their gains.
Trade/Tariff Issues– The U.S.’s increasingly protectionist trade stance has led to tariffs on Chinese goods. Uncertainty is causing some investors to sell on emotion.
Change in China – China has the second largest economy in the world, and their economy is slowing. We saw a slowdown there in January 2016, as well.
Is the news all bad? Not at all.
- U.S. economy fundamentals are strong.
- Valuations are sound for investors with a long-term time horizon.
- While the volatility can be difficult at times to stomach, it has also historically created great investing opportunities.
- Unemployment is among the lowest levels seen in recent memory.
- Inflation is under control.
- While global growth is expected to slow, it is not stagnant.
As longtime money managers, we are not surprised by the market's sometimes unexpected swings. It's why we tend to structure client portfolios based upon an individual's or couple's unique risk tolerance, needs and time horizons. This allows us to mitigate market pullbacks when there are surprises.
The downside risk to our client portfolios are – by design – structured to meet client goals. Even in the event of a decline in the value of stocks, the impact to client portfolios should be muted by allocations that include bonds or other diversifying strategies. And any decline in value is likely to recover over time.
We know that investing is a long-term prospect, and our firm works with some of the nation’s leading investment management companies. This gives us access to some of the best research and financial analysts in the industry.
Please don’t hesitate to reach out to a member from our financial advisor team should you have any questions or concerns.