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Stock Market Update: It's Deja Vu All Over Again Thumbnail

Stock Market Update: It's Deja Vu All Over Again

Insights Investment Investing Stock Market

Today, the markets are concerned about how many times the Federal Reserve is going to raise rates this year, a possible war between Russia and Ukraine, and a breakdown of technical indicators.  The NASDAQ has dropped 13% in just 7 trading sessions.
In late December 2018, the stock market lost its mind. Concerns about rate hikes, a trade war with China, and a breakdown in technical indicators caused a 13% drop in the NASDAQ in 9 trading sessions.
In 2018, the VIX (the volatility index) jumped from 21.63 to 36.07 during those 9 trading sessions. This year the VIX has jumped from 19.19 to 38.8 during the last 7 trading days.
While the VIX is a fear indicator, the bond market is a better one. Interest rates have been rising all year as the bond market prepares for higher rates from the Federal Reserve. However, we have not seen a big flight to quality.   Yesterday, despite a 1000 point drop on the Dow, bond prices barely budged.  This indicated no real fear in the markets. By the way - the same thing happened in 2018.
Big drops in the markets have always unnerved investors.  It is tempting to bail at the first sight of a market selloff. But a look at 2018 provides some perspective. Back then, stock prices hit their low point on Christmas Eve.  By January 15, the declines were erased.
Prolonged market downturns are typically triggered by a bad economy. If anything, we have one that is a bit too strong.
We expect similar volatility and instability moving forward. The market is currently pricing in several interest rate hikes.  The stock market could remain unsettled – prone to trending down until the policy stabilizes.

If you are young and your account is allocated inline with your risk tolerance, this market imbalance will in time rebound.  It might even be a good buying opportunity.
If you are approaching retirement and unsure of your risk tolerance, call us.  We can help you review your account.  If you are not sure about your current risk tolerance, call us and we will review that with you.
If you are using one of our Dynamic Allocation models, reductions in the stock allocations have already started to occur.

We have seen market declines like this before and there will be recovery.

Naturally, if you have any questions do not hesitate to call. We are always ready to discuss any aspect of our investment policy.