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Market Commentary regarding VolatilitySubmitted by The Wealth Consulting Group on February 8th, 2018
WCG Investment Strategy Committee
February 5, 2018
What a day! The Dow had the worst intraday decline ever of almost 1,600 points and closed down 1,175 points. The S&P 500 is still not in official correction territory as of now. It is down just under 8% from the top as of today’s close. The last official correction (-10%+) occurred in the beginning of 2016 and since then the stock market has not experienced the typical volatility we are used to. So, what caused today’s wild ride? That is the question for today, but a better question might be what should investors do now?
As people speculate as to what has caused the recent volatility and how much more the stock market may go down, it is much more important to discuss what investors should do. Before we get to that, we do want to explain what we think is happening. It is our opinion that concern over an improving US economy and the fear of the Fed raising interest rates too quickly has something to do with why we are having the recent sell off. Interesting isn’t it? Our economy is improving, so why would investors sell stocks? That seems contradictory using common sense, but good news is bad news for stocks, is a story we have read before.
As we mentioned above, the last official correction was in early 2016 and the last bear market (-20%+) ended in March of 2009 so this stock market has been well overdue for volatility. January saw a big upswing following a fantastic 2017 so what is happening now is not a surprise for us. We do not believe that the current selling is due to underlying economic issues that will cause the US economy to fall into a recession anytime soon. In fact, we are seeing just the opposite. Public companies are improving their earnings, and we are finally seeing the signs of a healthy economy starting to heat up. This is also true around the globe as both developed and emerging economies outside of the US are improving. In summary, we do not believe this to be the end of the bull market in stocks. So, what is an investor to do now?
We do not know how far the stock market could potentially go down from here but a correction or even a bear market is not out of the question. With that said, long term investors should not try to time the market. Timing has never been a reliable strategy that works consistently. Instead, the most important thing investors need to manage during volatile markets is their own behavior. It is easy to get emotional during these times and when panic leads to selling it often equals bad results. Market volatility is something we expect but cannot predict when it happens, so it is prudent to stay the course with your own personal investment strategy that has been implemented with your advisor. Rest assured that we are closely monitoring what is going on and as always will do our best to help you work towards reaching your financial objectives. If you have concerns or questions, we encourage you to contact your advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.