Happy New Year to everyone…
This is not the kind of market commentary I would have hoped to send after the holidays but given the market volatility of 4th quarter, 2018 and the first few trading days of the new year, it is an ideal time to provide some context and commentary that will help investors stay the course.
4th Quarter Stock Market Swoon
It’s impossible to pinpoint a market peak or trough until far beyond the moment it passes and the current correction certainly snuck up on us. There’s been plenty of optimism pumping up markets due in large part to the following:
- Tax cuts
- Healthy GDP growth
- Historically low interest rates
- Low unemployment
- Low inflation
We ended near a record high at the end of the 3rd quarter but in a sudden wave of increased volatility, the S&P 500 plummeted 19.3% between September 28th and Christmas Eve.
What a shock to the system after a 9+ year bull market run!
Who’s To Blame For This Mess?!
In short: IT’S COMPLICATED.
Today, it’s Apple and their downward adjustment in revenue projections, last week it was Fed President Jerome Powell and his pedal to the metal on rates, before that, Trump, Zuckerberg and tech, oil prices and housing sales, this tweet, that tweet… the list goes on. The fact is, there are many factors to the downturn.
It’s Always Something.
Ultimately, what goes up, must come down. We know that. We just never want to experience the second part of the equation.
As Dallas Fed President Robert S. Kaplan said this morning, “There will be a recession someday.”
So is this it?
Anything Can Happen
Differentiating between a correction (which occurs somewhat regularly in bull markets) and something more significant like a recession (or bear market), is often quite difficult. Determining the appropriate reaction can also be challenging. The appropriate reaction to heavier market volatility depends on a number of factors and is specific to each investor:
- Overall risk tolerance
- Time frame to retirement or the specific savings goal
- How their current portfolio is currently positioned
- If (and how much) they are withdrawing from the portfolio…(most important)
During these times we focus on all of these things and how they impact a client’s portfolio. We review allocations and positions in each portfolio to identify potential adjustments that might be appropriate. We may choose to reduce the type of risk exposure a portfolio is allocated to. We may choose to reposition the type of exposure our clients have in the markets (sectors, style, etc.). In some cases, we may choose to adjust the portfolio to a lower risk level entirely (remove equity exposure).
The emotion that comes along with a swift and/or significant market sell-offs is difficult to shrug off. The long-term average returns that a diversified portfolio has historically provided has always been accompanied by times of volatility. We position each client’s portfolio and allocation with a specific time-frame, goal and objective in mind based on the factors mentioned above. Investors will always wish they were more aggressive in up-trending markets and more conservative in down-trending markets. We attempt to stay focused on the long-term objectives for each client and make adjustments along the way. We encourage all of our clients to do the same.
It goes without saying that the sell-off in the equity markets in Q4 2018 has turned out to be more significant than anyone would have predicted or expected given the recent overall strength in the economy.
Investing requires patience and perseverance and much like a long-distance race, it tests us psychologically. If you want to reach your goal, you must manage your mindset.
Look To The Bright Side
There is always opportunity, even in market downturns.
If you’re having trouble finding any upside in the market downturn, please reach out. I encourage questions or discussion at any time.
I am here as your coach through this challenging leg of the race. Let’s finish strong!
Wishing everyone happiness and prosperity in 2019!