In my last newsletter I mentioned that a possible market correction (10% drop from it's recent high) was coming, and it looks like it is here. The S&P500 is down -5.8% on the week as of close of 8/21/15, not including the -3.94% today.
Is it time to panic? No. Believe it or not market corrections are healthy and normal functions of a market. Markets cannot always go up and must fall temporarily before they can go back up again.
Below is a 1 year chart of the S&P500.
Some analysts argue not much has changed from 3 months ago in terms of economic data. While it is sometimes hard to suggest why the market is correcting the slide below shows in any given year the market usually will go negative at some point in the year.
Above is a slide from JP Morgan's Guide to the Markets 2015 Q2 edition.**
Lastly, there are some factors that may be influencing the market:
- The Federal Reserve is expected to raise interest rates this year and recent meeting notes indicated that the committee is split on whether to initiate a rate increase in September. The market could be reacting to this uncertainty.
- China's stock market is in a major correction. China is one of the top 10 economies in the world and has a strong influence on the global market place. The current correction indicates weakness in their economy and markets are trading accordingly. Additionally, China adjusted their currency which implies signs of weakness in the economy. While China has had robust GDP growth it looks like they are beginning to slow down to a more manageable growth level of a developed country.
- Greece's bailout is in motion and while Greece has little economic impact on the global economy, there are other countries who have debt issues (Spain, Portugal). How Greece emerges out of the doldrums of an economic crisis is an important example for other European countries with debt issues.
- Oil drops to around $40/barrel. While lower energy costs are beneficial to many businesses right now energy stocks are hurting. The long term ramifications to lower oil prices have yet to fall out but recently the S&P500 has traded with a high correlation to the price of oil.
I write this newsletter to educate my clients and also caution them not to panic. Using emotions to trade is not a good investment strategy. Most investors are in it for the long haul so keep that in mind!
As always if you have any concerns please email or call me.
You can view your performance reports from Albridge at www.mainaccount.com/ifg. If you have NOT registered recently you will need to go through that process!
1. Past performance is not indicative of future results.
2. Diversification does not guarantee profit nor is it guaranteed to protect assets.
Remember financial markets go up and down, stay the course and you'll do fine!
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When markets go down:
Invest more! When the market declines it's a good time to increase 401k contributions and/or put cash to work.
Don't Panic! When markets go down people's natural reaction is to panic and change things. If you have a good allocation and financial plan weather the storm.
Market Performance 2015*:
2.88% S&P 500
1.43% Russell 2000
6.04% MSCI EAFE
-7.87% MSCI Emerging Markets
0.51% Barclay Bond Aggregate Index
Data from JP Morgan "Market Insights"
*Year to date as of 08/17/2015