Major U.S. and global equity indices have fallen this week, with the S&P 500 posting a two-day loss of 5% on Wednesday and Thursday. Several issues have been blamed for the selloff including:
• Concerns the US Economy beginning to overheat
• Worries that China may be slowing too much
• Potential tariff impacts on corporate profits
• Nervousness about relative valuations in a late-cycle market and economy
• Jitters of the highly anticipated mid-term election
Although all of these concerns are warranted and cause uneasiness, we must remember that pullbacks are normal. Stocks tend to have three to four pullbacks of 5-10% and at least one 10-20% correction each year. Below are a few points to gain perspective.
• Historically, October is more volatile. No other month has seen more 1% changes.
• Jitters prior to an election are not surprising. Since 1946, the S&P 500 has been higher a year after every single midterm election. That is 18 for 18 higher.
• The tariff impact has been minimal, and LPL Research and several other Economists see a U.S./China trade deal as very likely.
• We have had six straight months of gains, with the 3rd quarter being one of the least volatile in history.
• Stocks tend to do well as interest rates rise. When rates spike, volatility usually follows.
• Leading indicators still point to economic growth, fundamentals are still strong and healthy corporate profits are expected.
• LPL’s research team, as well as many other Economists we follow, still see the potential for a year-end rally.
While all of these points are valid, so are your fears about the market, and we are not discounting your concerns by providing you with data. Investing is emotional. Investing takes discipline. Investing requires you to block out the noise. Investment decisions made during times of stress and weakness are followed by regret.
Our job is to coach you through volatility and remind you that your investment plan has been designed for you, with your risk tolerance and time horizon in mind.
For existing and future clients, schedule a coaching call if you are concerned about how the recent market volatility has affected your portfolio or if you are in need of your hand being held through this stressful market time.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 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.