The Market Selloff – What is happening??
Why the extreme selloff?
Today marks the 11th year since the bull market began. Unfortunately, today’s sell-off isn’t much of a birthday present for investors or global markets. This morning the DJIA opened down over 7% which triggered a key market “circuit breaker” that halted trading for 15 minutes. The “circuit breakers” are designed to slow trading if extreme selling occurs. The market’s extreme sell-off was caused by increased fears around the coronavirus combined with the burgeoning oil price war between Saudi Arabia and Russia that unfolded over the weekend. Saudi Arabia slashed prices for April after OPEC failed to come to an agreement with Russia over oil production and prices. As a result, investors are swapping out of perceived riskier investments such as stocks for safe havens such as bonds, gold and cash. The yield on the 10 yr. Treasury fell to a historical low of .521% this morning and gold rose to $1,700 an ounce, its highest level since December 2012. Given the singularity of these events, we see them as transitory versus the 2008-2009 period as overall fundamentals have been strong. That said, we would expect volatility in the markets to continue in the near term.
What is the state of the US economy?
If we take a step back and look at the underlying fundamentals of the economy, things look positive. February was the best month for the jobs report in nearly two years, adding 273,000 new jobs. We saw hiring across many sectors of the labor markets – key areas were in manufacturing, construction, mining and the service sector. This was despite trade disruptions with China and the beginning of the Coronavirus outbreak.
A stronger than expected Purchasing Managers’ Index (PMI) was a positive. The PMI is a key measure of the trends in manufacturing. Consumer confidence improved both in January and February. A low interest rate environment, strong labor market, higher savings rate, and lower debt are contributing to the health of the consumer.
What should investors do?
Resist the urge to overreact. What has occurred over the last few weeks is a Black Swan event and if we can learn anything from the 2008 crisis it is to stay the course! In a world where we have 24/7 news and are inundated with information, it can be difficult to not jump on the hysteria bandwagon. So, taking a step back, putting your emotions on the back burner and reviewing your plan to achieve your near, short and long-term goals is key during these times.
Remembering that time in the market is more important than timing the market. For most investments, especially equities, the longer an investor stays the course the greater the chance of achieving positive returns…and their goals.
Reevaluate how much risk you are taking in your portfolio. Since 2010, investors have experienced a 200% increase in the S&P 500. As a result, many investors may have taken on more risk than they can tolerate. None of us wants to miss out on the markets when they are rising. As a result the higher an investor’s Fear Of Missing Out (FOMO) barometer is, the more undue risk they may be taking in their portfolio. If the increase in volatility is making you uncomfortable, this would be a great time to reassess how much exposure to risk assets is appropriate for you. If you are panicking, revisiting your asset allocation to understand what is needed to meet your long term goals may be helpful. This is not a time to make any rash decisions in your portfolio. And know that we are here to help you.
The past two weeks of extreme market volatility are difficult to endure and can try the most seasoned investor’s patience and resilience. As mentioned, we suspect to see more of that volatility in the near term. However, by revisiting your long-term goals and sticking to your disciplined plan, you can help ease the anxiety and maintain your composure during these times of increased uncertainty.
“If you can keep your wits about you while all others are losing theirs…the world will be yours and everything in it!” Rudyard Kipling