Market Decline

If you are feeling a bit queasy today, it’s with good reason.  Stocks have declined precipitously over the last couple of days and there may well be more to come.  There is no denying that it has been painful to watch.   

Since we don’t know how steep or prolonged this decline may be, let’s spend a few minutes on what history has shown regarding stock market declines.

First, despite the pundits on TV and online, outside of an external event like a terrorist attack, no one knows what triggers a rapid sell off.  Contributing factors MAY include the strong jobs report last week that raised inflation fears, the Federal Reserve’s likely interest rate hikes this year, Washington dysfunction, or a stock market that has been moving higher almost every day for the last year.  The steep decline in the last several days is only a fraction of the huge stock market gains we have all gotten in the last year.

The US economy is strong.  Corporate earnings are growing and both large and small companies stand to benefit from the recently passed tax legislation.  The housing market continues to rebound, and consumer confidence and spending are increasing.

Obviously, the stock market and the economy don’t move in tandem every day, and this selloff might continue for a while, so how do we as investors respond?

Our recommendation, as always, is not to panic sell (or buy).  While this is a difficult period for sure, history has shown that selling into a downturn rarely works out over the long term.  Our goal for all of our clients is that you have a sufficient allocation to cash and bonds to both provide for near term cash needs and allow you to sleep at night during these periods.  

The most important message we want to send this morning is that we are here.  Call, email, or come by either office.  If you are nervous and want to talk, that’s what we are here for.