Five Actions NOT to Take Now
Important update on current global investment market conditions.
U.S. stocks ended a defensive week in the red as investor sentiment deteriorated in the face of fresh worries out of China. For the week, the S&P 500 fell 5.77%, the Dow lost 5.82%, and the NASDAQ slid 6.78%.
Much of last week's selloff can be attributed to ongoing worries about China. After Chinese officials unexpectedly devalued China's currency two weeks ago, recent economic releases indicate that the world's second-largest economy is rapidly slowing.
A slide in global crude oil and other commodity prices also contributed to fears of a slowdown. Oil fell below the $40/barrel level on a combination of supply and demand worries. Though domestic producers have cut back on drilling operations, OPEC producers like Saudi Arabia and Iraq continue to hold the spigot wide open in the hopes of chasing other producers out of the market. On the demand side of the ledger, investors are worried that a slowdown in China might affect the world's appetite for oil.
When markets take a dive, it's natural to worry about what's happening and where markets will go next. However, part of being a investor with at least some exposure to stocks is taking market swings in stride. Now is the time to stay cool-headed and focused on long-term allocations and performance. On that note, here are 5 things that you definitely should NOT do after last week's market pullback:
Don't listen to the talking heads.
The selloff is happening in the middle of a seven-year bull market. As of Friday, the S&P 500 has gone 1,418 calendar days without a 10%+ drop (between 10/3/11 and 8/21/15). Regardless of what the media is saying, the S&P 500 is down just 7.51% since its peak in mid-May. Markets experienced a similar selloff in September and October of last year. However, the talking heads have taken this widely anticipated pullback and made it sound like 2008 all over again. Remember - the media's goals are not aligned with yours. They want to keep viewers glued to their televisions and newspapers, waiting for the sky to fall. Out in the real world, we're taking a look at the numbers behind the selloff and making prudent adjustments where we feel it's necessary.
Don't panic and hit the eject button.
Corrections are a normal part of market cycles. Since 1927, the S&P 500 has experienced pullbacks of 5% or more about every 3.5 months. While the past can't predict the future, research shows that panicking and exiting the market is often the worst thing you can do when markets swing. Investors are notoriously terrible at picking market tops and bottoms; since periods of high growth often occur during turbulent times, investors who sell off and sit on the sidelines frequently miss out on the good days that are created by the volatility.
Don't think like a day trader instead of an investor.
Stock markets are driven by fear and greed. Right now, traders are in full-on fear mode and are selling off indiscriminately at any hint of bad news. Long-term investors are taking a look around and seeing what opportunities the pullback is offering. In fact, if you have additional cash that has been sitting on the sidelines waiting for an opportunity to be invested, now would be a good time to discuss that with us.
Don't get complacent.
Pullbacks offer you the chance to ask yourself if you're honestly prepared for a drawdown. As clients of ours, you should be able to sleep well at night knowing that you have a active, prudent strategy and a well-diversified portfolio that includes several asset classes other than stocks. We don't know whether the current selloff is a short-term blip that will reverse in a few days or the beginning of a deeper slide. However, domestic indicators are trending positively, and we believe that there is room for a resurgence.
Don't hesitate to contact us.
During times of heightened volatility, we spend most of our time analyzing the environment, researching what adjustments (if any) are prudent, and proactively communicating our latest thoughts to our clients via updates like this one. However, we know that sometimes clients just need or want to talk, so please let us know if this is one of those times for you and we will be glad to schedule a call as soon as possible. We are keeping a very close eye on markets worldwide and will update you as needed during the evolving situation. While we can't predict where markets will go in the next days and weeks, our globally diversified approach, disciplined structure and active management should help us navigate successfully whatever environment unfolds in the months and years ahead.
We hope this was helpful information. We will be back in touch soon!