The market has been crazy volatile over the last week, if you haven’t noticed. We closed positive today, but if you looked sometime in the middle of the day, you would think we were continuing another 2% drop like we saw Friday. Last week we saw a Tuesday session down nearly 4% and a Thursday session touch an intraday low down 4% before climbing back to add on to Friday’s mess. So, what does all this mean?
A couple of reasons actually. First, the economy generally runs in cycles (expansion, peak, contraction, trough). We have been in the expansion or a bull run (up market) since nearly 2009. Looking back to the Great Depression, the average bull market runs about 9 years, some much longer and others much shorter. So, we are right there towards the average end of a run and some contraction on the horizon is natural. Does that mean we are heading in to the dreaded R word (recession!)? Not necessarily, keep in mind that a recession is typically defined as two consecutive negative GDP quarters, which we are not seeing. This pull back in the market and having a down year is part of a normal cycle and the market finding a new settling point. We start to see some fear in the market because of this, which in turn causes volatility. Based on last weeks economic reports, we are still showing overall positive date for the economy, all be it slowed from previous reports.
What’s ramping it up is the ongoing trade issues with China. The feeling had been that we were starting to come to some resolution and agreement, but that quickly turned last week. Talks of doubling down on tariffs has caused some fear on top of this uncertainty.
We had also been raising rates for the past few quarters and the Fed has reported last week that they are going to ease off of this strategy going into 2019. It’s done as a way to fight off inflation, but we have started to see that level out.
What should you do from here? Don’t panic! As I always mention, focus on what you can control. We can stop the market volatility from happening, but we can control how we react to it and plan for it. Think back to your longer-term goals and investing strategy. Don’t let a short-term market storm derail you. Trust your allocation of investments will carry you through. Focus on your savings plan and hitting your objectives. Should we be cautious adding new money to the market for the time being? Yes. That doesn’t mean we shouldn’t though. You’ve heard me say it a thousand times, time in the market is much more important than timing the market! Think about going to the store and seeing everything on sale!
If you aren’t sure how this is affecting you, your 401k/IRA, and your specific goals, let’s have a conversation to talk it through! Email me at email@example.com, call or text 260-312-5413, or reach out through social media on Facebook, LinkedIn, or Instagram!