If you have watched the news or read the headlines over the past 24 hours you would think the markets were decimated yesterday with multiple reports indicating that the Dow experienced its worst day in history. This type of fear mongering is aimed to act on your emotions and I think it’s important to separate fact from fiction. The Dow did close 1,175 points down on February 5th, which is the single highest point drop in a day, but the percentage decline of 4.6% was not even close to the worst day in history. Furthermore, it can be expected that the higher index values will lead to larger price declines – this is a basic mathematical equation. The percentage change is always a better measure when looking at market performance.
We have seen a percentage decline of 8.3% from the Dow’s record high close on January 26 through the end of the day yesterday. This is still below the correction territory of 10%. In March, this current bull market will turn nine years old, which is the second longest bull market in history. During this time period, the market has seen four official corrections (moves of 10% or greater) and 60-some “panic attacks”. Do you remember the market reactions to the 2010 Flash Crash, BP oil spill in 2010, US debt downgrade in 2011, Eurozone double-dip recession in 2012, Taper Tantrum in 2013, Ebola scare in 2014, 2015-16 Chinese stock market turbulence, etc.? If you heeded the warnings of the media at any point over the last nine years your overall investment returns would have been negatively impacted and you would have missed 96 new record highs in the Dow since the 2016 presidential election.
What has caused the recent market volatility and when did good news become bad news?
The market has clamored for rising wages for years and the irony is that last week’s labor report, which showed wages increasing by 2.9%, is likely the main culprit of the current volatility. The markets are concerned that wage and price inflation will accelerate faster than expected and the Federal Reserve is going to be forced to raise rates at a quicker pace than anticipated. As rates rise, investors become concerned that it could choke the economy and lead to a rotation out of stocks in favor of the stability of bonds.
So, what should you do with all this noise? Our advice will sound familiar: tune out the market commentary and focus on your long-term financial goals. Your long-term financial plan with Market Street already has market volatility built into your results. These short-term gyrations should have little to no impact on your long-term goals, and therefore the best thing to do is to stay the course.
Seeing the markets reset is both healthy and expected and is needed to keep moving forward. We are often asked during raging bull markets why we hold certain asset classes, including cash. Yesterday was a perfect example of why diversification is still king and why cash has its place in your portfolio. While others fret over the market’s next move, we will sit back and continue to take advantage of the irrational behavior by managing your portfolio back to your target allocation via dynamic rebalancing (sell high / buy low).
Subscribe to Our Blog
Sign-up for our blog notifications below to stay up-to-date on the latest from Market Street Wealth Management Advisors.Sign Up
Please enjoy the ride and let us know if we can answer any questions.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Market Street Wealth Management Advisors, LLC [“MSWMA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from MSWMA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MSWMA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the MSWMA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.mswma.com. Please Note: MSWMA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MSWMA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a MSWMA client, please contact MSWMA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.