Risk is Back!
(i.e. The Market is Back to Normal)
The stock market turmoil of the past week will undoubtedly have some on edge. As a complement to our regular commentary Insights, we will also reach out to you during these important market events to offer our perspective, remind clients that this is a long-term journey with volatility expected from time-to-time and, most importantly, answer any questions (ease any fears?) that you might have. Quality, diversified, portfolios are built to weather these storms. How we prepare for and respond to these opportunities (yes, opportunities) is what makes the difference for clients in their long-term financial plan.
- Last week, as we discussed in A Not-So-Super Week, the U.S. jobs report came out and was generally positive. One notable point was wages. With the economy strong and unemployment low, wages have started to rise.
- Sometimes good news is bad news for stocks. Rising wages is often a precursor to inflation. The Fed has been able to be slow and deliberate in raising interest rates because of the lack of inflation. If inflation is indeed rising due to a robust economy, the Fed could decide to accelerate their rate increases.
- Rising interest rates are a headwind for stocks, and this appears to be what has the market spooked despite very good economic fundamentals and strong corporate earnings.
What should you do?
- First, leave emotions at the door. Watching account values go up and down can be very emotional, but our actions as your investment manager are based on a sound and repeatable process.
- The best way to think about this event is that stocks just got a little cheaper. As such, this is no time to exit a long-term plan. Quite the opposite. At times like this, we will be actively looking for opportunities to add exposure.
- Despite the drama of the past few days, stocks have only fallen back to their levels of mid-December. Arguably the market’s quick start to the year was probably overdone, and the recent declines are a healthy check on valuations.
“The biggest one day decline in the Dow!”
Beware of sensational headlines. The stock declines of the past few days are meaningful, but the headlines are very misleading. The financial media will do everything they can to attract viewers, including scare tactics. The scary headlines refer to the points decline, but what matters is the percent decline, which is nowhere near the worst ever. Also important is that the stock market functioned exactly as it should have, with no notable trading disruptions.
As we often say, we can not predict the future, but we can prepare for it. Well-diversified portfolios built on the foundation of Quality and Value are designed to survive market declines and flourish in recovery. In short, while future performance can never be guaranteed, we have been working hard on your behalf to make sure that short-term volatility does not disrupt your long-term financial plan.
Please contact us if we can be of service in any way. Thank you for your continued confidence in the Strategic Team.
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