October Market Correction
October 16, 2018
There has been a selloff in our markets this Wednesday, down 825 (3.2%), and Thursday, down 545 (2.1%). Meanwhile the markets have rebounded ~280 so far today. The market correction has been fueled by slowing international growth, ongoing trade tensions and rising interest rates.
This year has been reminiscent of the late 1990's when technology stocks disproportionately drove the markets higher. That market ended with the "DOT COM Correction" in March 2000. At this point, we are not predicting a similarly large correction, but it’s a nice historical reminder that sometimes our markets "get greedy" and overvalue "hot stocks" and undervalue blue chip stocks. We believe todays "hot stocks" are labeled FAANG stocks, representing Facebook, Amazon, Apple, Netflix and Google. Although we have a small allocation to these stocks, our highly diversified blue-chip stock and bond market strategy has preserved us over the past couple days. For example, Home Depot was only down -1.1%, while Costco’s was down -1.2%. Meanwhile, bonds were up a bit.
Historically our markets encounter 10% market corrections every 13 months as seen in the chart below. Since it has been over 28 months since we last experienced a 10% correction, this market move does not surprise us.* October is typically the most volatile month of the year.* Only appropriate given Halloween, the scariest holiday of the year, caps off the month. So, it would surprise us to see our markets lose another 500 – 1,000 points in the next couple weeks.
On the bright side, we think our economy is stronger than ever, fueled by the 2018 Corporate Tax Restructure, while unemployment is as low as its been in 49 years. Inflation remains at historically low levels as well. These are all reasons why our markets could climb higher by the end of year.
We will be watching the markets closely during the rest of the month to see what else unfolds and provide additional updates. If you have any questions, please contact us anytime.
Remember to stick with the plan that has been purposely crafted for your distinct situation. Markets will go through cycles that take us to new highs and markets will also enter periods of volatility. Making decisions in haste based on an emotional reaction to current circumstances is rarely profitable over the long term.
I hope you’ve found this review to be educational and helpful. As we always emphasize, it is our job to assist you! If you have any questions or would like to discuss any matters, please feel free to give us or any of my team members a call. Feel free to pass this onto someone important to you.
Thank you very much for the trust and confidence you’ve placed in our team.
Kelly Wood, AAMS
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Kelly Wood and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. This is not a recommendation to purchase or sell the stocks of the companies mentioned. *Wall Street Journal 09/3//2018