What a difference a week can make.
Last week, the Department of Labor announced that 137,000 new jobs were added to the US economy in September, moving the unemployment rate to 3.7%, or the lowest it has been since December 1969. Further improving matters, the average hourly earnings continued to increase to $27.24, a 2.8% jump from a year ago. Markets were calm and most analysts and investors were feeling good.
Fast forward to this past week. As of Thursday, the S&P 500
was down over 5% in five consecutive trading days. Making matters worse, some of the Wall Street darlings like Amazon, Google, and Netflix were down roughly 10% over the same period. So, how bad is this? It depends on who you ask. Some are saying this is a healthy pullback from some of the tech stocks that were trading at enormous premiums. Others say it’s an early sign of a market that has overheated and may result in a further slide.
What could be causing this? Many experts connect the issues at hand with rising rates and momentum concerns.
Is it time to sell?
It is impossible to perfectly predict the markets. When you shift into or out of the market, you are making a prediction that you will buy low and sell high. This sounds like a great strategy. You’re likely even more enticed when you speak to an individual at a cocktail party who tells you they do this to perfection. Don’t buy it. In fact, many of the most skilled investors actually mistime the markets.
With the recent market pullback, I wanted to revisit some analysis provided in March of 2018 related to market timing in order to reinforce the principle of setting a strategy, sticking to it, and avoiding the short-term noise. I think that this is especially relevant now, and if markets continue to pull back, even more so in the coming months.
As previously published on March 17, 2018…
Thinking about making some bold shifts to your investment strategy? Just remember, equity markets are historically up two out of every three years, and by
mistiming market movements, you can lose out on significant returns.
But, if you
just the five best days
of that 20-year period, the growth of that money is reduced to $26,625 - over $13,000 less. If you
miss the 20 best days
of that 20-year period, that $10,000 only grows to $15,723.