We all knew that it was coming - we just didn't know when. And of course, few of us thought that a 10% correction would happen so quickly. And maybe we haven't hit the bottom quite yet, who knows - but with corporate earnings on the rise and a large chunk of the froth out of the market for now - we are certainly close.
But let's also keep things in perspective. Below is a chart depicting the 1-year performance of the DJIA through February 6, 2018. Yes, the largest one-day point drop in history hurts, but look where we were just a year ago. Seen through this lens, things are not so scary.
This steep and unexpected drop (in that January had been so good and there were few signs that this correction was imminent) further proves the point we stress to clients so often - you can't time the market.
We never know what the market will do in the short-term. Even with this drop, we are still close to where the year began. Even if you had that crystal ball and left the market at the end of January (which I think few did), when do you get back in?
As we all know, it is now too late to sell and too soon to buy because the short-term volatility continues. The best course is to keep your eye on the long-term, make sure that your portfolio is diversified and that it matches your income needs (if any) and long-term goals and objectives.
The scariest thing to me is not that this happened as much as the speed and magnitude of the drop and subsequent partial recover on Monday. Was it caused by some of the highly leveraged ETFs that most of us don't really understand? Are there systematic issues that need to be addressed? These answers will come, but for now, it is best to counsel clients to stay the course.