How The Grinch Stole Christmas
Sorry to take your mind off the joys of the holiday season, but given the recent market decline I wanted to get some info and thoughts out to you ASAP. But before we dive into finance, I wish you and your family the happiest of holiday seasons and best wishes for a stellar 2019!
Summary of Recent Market Action
The week just ended was worst week for the stock markets in ten years, down about 7%. Year-to-date the major US indices are now down about 10%. From highs the NASDAQ and Small Cap Indices are in bear market territory (down over 20%)while the S&P500 and Dow Industrials are down about 17%. That said, the stock market is still about 15% above the 2016 election night lows. And keep in mind, 20% declines in stocks typically happen every three years, so what we're seeing now is not all that unusual.
Bonds have rallied, showing once again the value of having some balance in a portfolio. On average bonds gained 1.5-2% in value over the last month while stocks declined 9% over that period.
What Caused the Decline?
While stocks have been weak for the past two months, the decline accelerated this week due to a confluence of negative events:
- The Fed raised rates and indicated they would likely raise two more times in 2019
- Political turmoil reached a high point with the resignation of Defense Secretary Mattis and the shutdown of (a portion of) the US government
- Tensions with China remained high, increasing the chances of a prolonged trade war
Some have called it a "perfect storm" of bad news, with the issues I and many market watchers have expressed concern about (political uncertainty, trade wars, etc) all coming to the forefront.
Time to Sell or Time to Buy?
According to Bespoke Investment Group, this is the most oversold the stock market has been in nearly three years. Stock valuationsare the lowest they've been in over five years. CNN's Fear and Greed Indexhit an all-time low (showing extreme fear). As the legendary investor Warren Buffett has said, "Be fearful when others are greedy and greedy when others are fearful."
Given that information, it's much more likely this is a buying opportunity rather than a time to sell. With a short trading day on Christmas Eve, and the market closed Tuesday for Christmas, the best plan is to watch trading late in the week to see if markets stabilize. But if you've been holding cash looking for an opportunity to put it to work these are the conditions we've been waiting for. In fact, I have a run of all cash balances in all client accounts in front of me now, and I'll be reaching out to those of you who have large cash balances in the coming week to discuss our best course of action.
Given the sell-off, here are a couple of strategies you might want to take advantage of:
- If you contribute to a retirement plan, whether with me or at work, consider trying to accelerate your contributions in the first part of 2019 to take advantage of the sale on stocks
- If you're taking distributions from your account here but can do without the money for a few months, consider suspending your distributions temporarily (remember, when we send you cash we have to sell investments, and it might be better to wait to sell)
- If you're worried, reach out to me and we'll review your plan and investments: one of the best ways to overcome fear and anxiety is through education and information
Again, my best wishes for health and prosperity in the New Year!