Kevins Korner

Market Correction- It's Been a While

Today the Dow suffered its second 1000-point decline in a week. And in between we had a 600-point rally. Certainly an eye-opening time, especially on the heels of many years of record low volatility in the stock market.

 

Knowing these are big numbers and this volatility certainly generates both hysterical headlines and genuine concern, I'll share not only my thoughts but also links to the thinking of others. I'd encourage you to take a bit of time over the next few days to learn a little about what's going on as knowledge and understanding can help you successfully navigate emotional times.

 

Last Friday I suggested that what we're experiencing in the markets is not unusual, but after many years of seemingly unflappable markets these swings can be very unsettling. We're now down 10% from the all-time highs reached two weeks ago, so this is officially a "correction" (defined as a drop of 10% or more). Over the past 80 years markets have "corrected" on average every 12-18 months, and corrections are a normal part of a healthy market. I'd liken it to the occasional 3.5 earthquake: something you'd expect to happen periodically, but when it happens it always is a bit shocking.

 

Given the last correction we had was actually a historic bear market (the 50% decline in 2007-2009), it's understandable that investors view subsequent corrections with suspicion. But given the economic backdrop today (low unemployment, strong corporate profits, further economic stimulus in the form of the recent tax cuts) there don't appear to be the conditions present for a recession and full-blown bear market. More likely this is the normal process of the markets working off some the large gains of 2017 and tempering the euphoria that existed over the last few months.

 

Here is a great article from Bloombergoutlining both the bull and bear case so you can get perspective from both sides.

 

And an article from CNNcovering today's action.

 

The most important thing is that you are invested in a way that allows you to sleep well at night. Investment decisions driven by fear (or greed, for that matter) tend to be costly over the long term. I'll continue to share thoughts and information to educate you as to what is happening and how it might affect you, but always feel free to reach out to me if you have any questions or concerns.

 

Sincerely,

Kevin

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