It all started Tuesday. During lunch I watched the market report and things were relatively calm but by the end of the day the Dow had lost roughly 800 points. I was speaking to a prospective client at the time and he’s the one who told me about the drop.
During our call he had received an email with a bold headline saying, “Avoid the Next Market Crash!” The email came from another advisor who does a lot of online marketing so I thought it was interesting to get a peek at the competition’s tactics.
It amounts to fear-based selling at its finest. And I think it’s ridiculous. How in the world can you make substantive financial decisions based on a single day of market performance? I suppose a day trader or hedge fund manager would disagree but those opinions are irrelevant to your concerns.
The carnage continued throughout the week and it’s anyone’s guess where it goes from here. Trade talks, Fed decisions, corporate corruption or any of the myriad reasons why the market might hiccup will always affect outlook in the short run. A look at the bigger picture shows that the S&P 500 has now gone negative for the year, for the second time. It happened in October, the market bounced back and now it has dropped again.
Basically that means the S&P 500 has gone nowhere this year and that’s a far cry from the type of correction that will affect portfolio values in the long run. For those of you heavily invested in the market it indicates that you are about in the same position as you were a year ago. In my opinion, drastic moves based on short-term volatility are reckless and ill-conceived.
I’ve spent a lot of time on this newsletter in order to give you fundamental reasons for making major financial decisions. From one day to the next solid advice doesn’t change. Over the past several months I’ve given you plenty of documentation that will help you make decisions based on your needs and not exterior forces you can’t control.
One of the first newsletters I sent gave some information about how interest rates affect decisions. More important than the stock market, the US Treasury Yield curve has gone inverted between two and ten years. In the interest rate newsletter I referenced an article that explains what has always followed an inverted yield curve. I’ve been watching it and talking about it for the past year and a half. I thought it was so important that I sent it to everyone on the list three months ago. You should read it right now. Find it here…
Most people think about interest rates in terms of yield on safe assets. That’s fine for analyzing options but there’s a deeper explanation as it relates to indicators that can help you make good decisions. Interest rates have a broad and far-reaching effect on business and global economic activity. It’s an indicator that lies beneath what you see on the surface in terms of stock prices. It’s an indicator you can use to determine timing and market participation based on your time frame and individual needs.
I’m writing this on Thursday, Dec. 6th. This morning the Dow was down more than 700 points and it has climbed back to being down about 500 right now. I thought to myself that I might have to update this on Friday just in case there’s a bump that changes numbers. But I don’t care because that wouldn’t change a thing. One day in the market doesn’t matter.
Making decisions based on a single day of performance is nothing more than an emotional reaction. Many of you can look back and remember emotional reactions that were not beneficial to your long-term growth and accumulation, kind of like when some people bailed in 2008 only to miss out on several years of recovery. I don’t want you to do that so settle down and consider the big picture before making any major financial moves.
Best of Luck!