Market Update - Questions Answered
What’s Causing the Recent Market Downturns?
There are a few factors contributing to recent market volatility:
Concerns about a trade war with China are ongoing - However, we believe this will be resolved in negotiations before it comes to a full-blown trade war.
Fears of a government shutdown - However, it’s important to note that government shutdowns have happened before and have never had a lasting impact on the economy.
Year-end tax loss selling – this puts pressure on stocks, which are already down. However, this is cyclical and should finish its course by the end of the day December 31st.
Fear among investors – this causes investors to sell out of their holdings and go into cash.
What Should We Be Focusing On Now?
Historically, we experience a 10% correction about once a year. While 2018 has experienced two of such corrections, we did not have one in 2017, so it balances out. We have also historically experienced a 15% correction about every two years. The S&P 500 was down 15% from its high at close on December 20 but remember—the last time we had a 15% correction was June 2012!
When corrections do occur, the average takes about 3.5 months to hit bottom and another 4.7 months to fully recover to its prior peak.
Also, having an experienced advisor and a diversified portfolio is key to weathering the turbulence. A change in market dynamics is likely to be accompanied by a change in market leadership. What has done well in the past may very well struggle in the period ahead. The diversification message is sometimes dismissed by investors in periods such as this year when every major asset class suffered a negative return. But the reality is that sometimes the benefit of diversification is holding asset classes or strategies that lost less than investors would have experienced in an all large-cap US equity portfolio.
What is The Bottom Line?
While volatility remains, now is not the time to panic. We believe this is a normal correction within an ongoing bull market, and the best thing investors can do is to stay the course. We will continue to monitor and update the market conditions and your portfolio and planning relative to that. Stay tuned for more communication and updates in the weeks and months ahead.
I wish you a great and safe evening tonight and a prosperous 2019!
Ben Offit, CFP®
S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.
Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.
NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes approximately 5,000 stocks, more than most other stock market indices. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indices.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index which includes the 3,000 largest companies in the U.S., based on market capitalization. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $2.0 billion and a smallest of 218.4 million.
Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.