The markets are experiencing broader swings as businesses face increased uncertainty from recent policy changes concerning international trade and tariffs. Some technology stocks are also experiencing a pullback from their recent gains as many believe they could be overvalued.
Instead of only addressing the topics of the day, I thought it would be more helpful to share principles that can help guide us and provide greater confidence when navigating challenging waters in the market.
Keep an Even Keel
The financial markets are always moving. Some days are more pronounced than others. Broader swings can cause concerns and even be a little unnerving. Uncertainty is constant in the markets, but it seems heightened when fluctuations happen more regularly. Still, we shouldn’t allow ourselves to be influenced by short-term emotions. It takes discipline.
Our approach is to stay informed about any developments but also remain focused on your overall financial goals and the investment strategies to help you reach them.
Orient Our Position
It is important to look beyond the headlines. Sensationalism can sway people to click and view. Instead, we should consider the greater context of the overall economy and market.
First, here is a brief refresher of terms you may be hearing:
Expansion – Two consecutive quarters (6 months) or more of growth in Gross Domestic Product (GDP). Think of GDP as the total value of all goods and services produced within an economy.
Pullback – A decline of value of less than 10% after a period of growth.
Correction – A decline of value of 10% or more from the latest peak of growth.
Recession – Typically two consecutive quarters (6 months) of negative GDP.
All of these are defined because they are fairly common events throughout market cycles. How we navigate these cycles will have a large impact on our outcomes.
So where are we? The S&P 500 stock market index recently experienced a correction from February 19th’s highest peak. Many still believe a recession could be avoided because current economic indicators are mixed. Recent consumer sentiment may be showing signs of weakness; however, some retail sales are stronger than anticipated. Inflation is at or slightly below expectations. Housing starts are above forecasts. Jobless claims are lower than expected. While the market has been choppier, the economy is still showing resilience.
Keep Your Eyes on the Horizon
To provide you with a broader perspective, I’ve enclosed MFS’s “Managing the ups and downs: Equities edition.” Short-term declines can dominate headlines but what is their legacy? For the past 35 years there have been 9 intra-year declines that have led to a down year. Most were a stumble toward stronger footing for growth.
Allowing ourselves to be carried away by short-term swings in the market would make it more difficult for us to arrive at our desired destinations. This is why we take more of a long-term view as investors rather than short-term speculation as traders. We look to position ourselves toward where we are going, not to stay where we are currently.
Adjusting to Stay on Course
For some, temporary pullbacks or declines may be a good time to invest at a cheaper price. For others, we may wish to be more thoughtful about the timing of sales.
If you haven’t recently scheduled an update and review, be sure to reach out. At that time we can discuss these developments and the opportunities we have to navigate your extraordinary sojourn.
Sojourn well,
Sean M. Williams, CFP®