Is it time to panic?
Is it time to pull out of stocks?
Today was a bit ugly in the US Stock Markets. The Dow Jones Industrial Average closed down 1,175 points, the S&P 500 down 113 points and smaller companies, represented by the NASDAQ closed down 273 points. The news was not a lot better in most international markets, with most major markets posting negative returns for the day as well.
Is there reason to panic? Let’s think about recent economic news:
- The US economy just added 200,000 more jobs, and the jobless rate now stands at 4.1%.
- The average hourly earnings of American workers has risen 2.9% – more than expected, and is largely a result of 18 states that began the year with higher minimum wages.
- There has not been any sign of higher inflation, but fear abounds that higher inflation might kick in. The reality is that inflation is not yet as high as the Federal Reserve wants it to be.
- Some US companies have paid out bonuses following the huge reduction in US Corporate tax rates.
- There is a resurgence in factory activity in the US.
- Housing is rebounding.
Does any of the above signal a time to get out of stocks? I don’t think so. The truth about markets is that short, sharp pullbacks are inevitable and routine – we just haven’t experienced one in a year and a half, making it seem “unusual.” We actually just ended the longest streak without a 3% pullback in the history of S&P 500.
I do want to point out that sticking to our philosophy helps propel you toward your goals. In January we rebalanced portfolios because the stock positions had grown high enough that they were too far off the targets and changing the risk profiles of your portfolios. We sold enough of the stock funds to pull you back to your agreed upon asset mix. We did that not because we can foretell the future (we can’t), but because we have a methodology that works in the long run, and the discipline to rebalance is part of that methodology. Will the markets continue to lose ground? In the short run, it is possible. But, we have confidence in the long term returns of stocks, and do not recommend trying to time the market by selling.
On the flip side, if you have cash to invest, this could be an opportunity!
As always, please reach out to us if you want to talk!