Critical Market Update – The Real Reason for the Selloff
- What impact did the Superbowl have?
- How serious is this correction?
- Where do we go from here?
There is no doubt in my mind that the real reason for the market sell-off is the disappointment of investors over the Patriots losing the Superbowl, and anger towards the refs for those two blown calls that cost them the game.
However, if you believe there is more to the market collapse, such as economic, fundamental and technical reasons, then let me spell those out as well.
It hurts, doesn’t it? Imagine watching it every minute of every day as I do. But of course, that’s my job.
Now, that the averages have dropped by more than 10%, it’s officially a “correction”. A bear market doesn’t happen until you reach 20%….and I do not believe we are going to get there, or even close. This looks and smells like an old-fashioned correction, and you do not sell into corrections because you would end up buying back at higher prices.
As you know, we manage your portfolio “tactically” (never buy-and-hope) and are ready to make changes on a moment’s notice whenever necessary. Rest assured, I am watching everything very closely and am on high alert. And don’t forget that your account comes with Wealthguard™, an asset monitoring software, to give you an added layer of comfort.
First and foremost, we were way overdue for a pullback. Every correction is painful, but you know as well as I that corrections are healthy and necessary. The funny part about pullbacks is that we all know and understand that they are necessary, yet, most people panic. They say to themselves, “Oh no! The market is dropping, something must be wrong!” and then want to sell. Don’t worry, it’s common nature. We all do it, it’s my job to protect you the best that I can, and I am.
We must remember that even trees do not grow to the sky.
Here are some important facts to put the drop into perspective:
- We only got back to mid-December levels two months ago. The 7.8 percent drop in the Standard & Poor’s 500 is similar in scale and speed to declines we witnessed in January 2016 and August 2015, neither of which caused lasting harm.
- The Dow fell by 1,175 on the Monday, the biggest single day point drop in history. However, it was only 4.6%. There have been many worse percentage declines in history. Remember the 508- point pummeling on black Monday in 1987 that represented a 22.6 percent market crash? I do. I was a young broker at Merrill Lynch in Boston. My 34 years in this business has taught me valuable lessons on how to plan and invest successfully.
- In large part, we got lazy and complacent in the last year. The S&P 500 did not decline by more than 2 percent on a single day in all of 2017, but that’s not the norm.
- We had 5 days that dropped by 2% in 2016, 6 in 2015 and 4 in 2014. In 2011, we had 21 of those trading days which is about 2 a month.
- Former Chair of the Federal Reserve, Janet Yellen, retired last week. She is arguably the greatest stock market booster of all time. Markets have a long history of greeting a new Chairman with a warning to keep interest rates in check. Message received.
- The catalyst for all of this was inflation fears, stemming from the payroll report that we had the highest wage growth in many years. Long term, this is a good thing because people making more money is a positive for the economy.
So, where do we go from here?
I believe the bottom is close at hand, but do not panic when we retest the lows. That’s when the market goes back down to the low point and bounces off successfully. Have patience. Turbulence takes a while to moderate out and these big swings will likely be with us for several weeks, so expect it.
Most importantly, this a wake-up call for people that have become complacent. Volatility is back with a vengeance and with it will come more big declines and sleepless nights.
No one knows when the market will crash again. What I am certain of is that it will happen in your lifetime, probably more than once. I have already lived through 5. This should be especially concerning to you if you are retired or getting close, because you cannot replace this money.
It’s a tough time to go at it alone or with an advisor that doesn’t have the proper experience, discipline and expertise. This is why it is so important to “Be the expert or hire one”.
Successful investing isn’t about throwing money at the market and hoping it goes up. It’s about telling your money what to do. Otherwise, it does the wrong thing or nothing at all.
Put a customized Retirement Master Plan in place that incorporates:
- A retirement income analysis, so you never run out of money
- A forward-looking tax-strategy
- A tactically managed investment portfolio – never buy-and-hope
- An asset protection system firmly in place using our “Wealthguard” system that will help protect you when, not if, the market decides to crash again
This is what we do for our clients every day.
To learn how we can help, simply call us for a free analysis today at 916-925-8900.
Cheers -Keith Springer