Why the Mini-Crash Was a Good Thing
Good bye and good riddance December! What is usually one of the best months of the year, turned into a Christmas nightmare. 2018 was the worst year for stocks in a decade and December was the worst December since 1931.
The S&P 500 fared the best, dropping only 20% from the highs. Other broader market index’s suffered far worse with the Nasdaq, Russell 2000 and Emerging Markets plummeting 25-30%.
There was no place to hide.
Now that it is behind us, I will admit that the December mini-crash was a good thing. As I stated repeatedly in my newsletters over the last few months, I do not believe that the decline is a forebearer of an impending recession.
What I think happened was that the market was going through a normal 10% correction. It was exacerbated by Fed Chairman Powell’s asinine statement during his press conference which stated that the Fed was expecting to raise interest rates at least two more times next year. From the moment he uttered those words, stocks fell another 10%+, pushing the indexes officially into bear market territory.
Falling into a “bear market”, even if just briefly, it is painful as hell. However, there is a silver lining for investors: First, that with an official bear market, we now reset the clock. What was the longest running bull market in history has turned into a new one that is just beginning.
Second, it created panic and fear amongst investors, something that is necessary for stocks to rise. As the adage goes, when everyone is bullish, there is no one left to get in and fuel a further rise. On the other hand, when everyone is bearish, there is lots of money on the sidelines waiting to get in.
What usually happens is that those investors who “panic sold”, eventually see the market rising without them and they scramble to get back in, which will likely be higher than when they got out.
I am happy to say that my predictions (and hopes) have come true. The Fed reversed it’s course and now they will be “patient” with rates. Also, earnings have been better than expected with over 70% of companies exceeding expectations, and the economy remains strong.
We are reminded yet again, not to overreact or panic to market conditions. There are times to be in cash, but this is not one of them. The difference for success is being invested “properly and tactically”. Never passively with a “buy-and-hope” strategy. In addition, retirees need an asset protection system firmly in place to help protect them from the next time the market decides to crash. Most importantly, be sure you have the right customized retirement master plan in place for you and your family.
These are the things we help our clients achieve every day.
If I can help you in any way, feel free to contact me.