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Market Volatility Rolls On

Market Volatility Rolls On

October 26, 2018

U.S. stocks finished lower Friday with the S&P 500 and the Dow Jones Industrial Average turning red for the year as fear of a global growth scare builds and doubts regarding the trajectory of corporate earnings are on the rise.  In the wake of disappointing 3rd quarter results from tech giants Amazon & Alphabet (formerly Google) markets collapsed today with the Dow falling more than 500 points in early trading, paring some losses throughout the day, but still got lumped by 296.24 points, or 1.2%, with the average falling to 24,688.31.

The S&P 500 fell 46.88 points, or 1.7%, and the tech heavy Nasdaq Composite Index lost a whopping 151.12 points, or 2.1%, ending the day at 7,167.21.  For the week, the Dow is off 3%, the S&P 500 and the Nasdaq are both down almost 4% and so far in the month of October the S&P is off 8.8%, the Dow is down 6.7%, and the Nasdaq has plunged 11%.  Today’s trading has put both the S&P 500 and the blue chips into the red for 2018.  .

So what is driving this market craziness? 

Investors were wary ahead of the weekend amid persistent worries about slowing global growth, rising interest rates and concerns that companies have seen peak earnings growth – Subpar revenue results from two tech bellwethers certainly didn’t help:  Despite posting all-time record profits, Amazon’s gross sales disappointed, and more importantly, the company warned that its fourth-quarter revenue numbers should come in lower than expectations.    

Additionally, Trade concerns are lurking after U.S. officials reported that talks with China won’t resume until Beijing issues rational proposals to enforce technology regulations and other economic issues.

So, with concerns of slowing growth, trade, and rising interest rates, how are investors to proceed?  In my view, the declines in stocks are disappointing and potential headwinds to economic growth 2019 are concerning but I feel that market reaction is way overblown.  The speed and magnitude of the declines, caused mostly by algorithmic trading, make this a dangerous time to make any major investment decisions which can ultimately derail an investor’s probability for long-term success.  The market swings are very unsettling, but the underlying causes of the rout we are currently in, in my opinion, are unlikely to totally knock out the economy or earnings from corporate America. 

Corrections happen and this year, we have experienced something very unique and rare.  We saw markets hit all-time highs in January and then get slapped by a 10% in a matter of days and in September we got back to all-time highs again and got nailed 10% a second time where we currently sit today.  That hasn’t happened since 1990. 

In my previous message to clients I mentioned that corrections in the market are actually healthy and that they can help to prevent a boom to bust scenario.  I still believe that and it’s very important to understand that corrections are a process that on average, occur every 357 days, or about once a year.  It’s safe to say we are due for a correction, especially after a year like 2017, but just like in the months following the February correction, we need to give the market time to reprice and settle down.    

We don’t invest for a day or even just couple months.  The market is always rewarding to investors who are patient and focus on long-term success.  Volatility will likely continue in the foreseeable future but, longer term, this too shall pass just like every other market correction in history.  For now, we hang in. 

Disclosure: (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 and there can be no guarantee that strategies promoted will be successful.)